-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G1X0CwsQdcuTX1lmn5JwG0N1PhiywecmLqjLPoi4V7RDPh9x7QaUaulYyNDX6jzf 9Yo46tx9n9W0KFuhMSAcAg== 0000950144-97-002111.txt : 19970307 0000950144-97-002111.hdr.sgml : 19970307 ACCESSION NUMBER: 0000950144-97-002111 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19970306 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MELITA INTERNATIONAL CORP CENTRAL INDEX KEY: 0001034956 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 581378534 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22855 FILM NUMBER: 97551497 BUSINESS ADDRESS: STREET 1: 5051 PEACHTREE CORNERS CITY: NORCROSS STATE: GA ZIP: 30092-2500 BUSINESS PHONE: 7702394000 MAIL ADDRESS: STREET 1: 5051 PEACHTREE CORNERS CIRCLE CITY: NORCROSS STATE: GA ZIP: 30092-2500 S-1 1 MELITA INTERNATIONAL CORP S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- MELITA INTERNATIONAL CORPORATION (Exact Name of Registrant as Specified in its Charter) GEORGIA 3661 58-1378534 (State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
--------------------- 5051 PEACHTREE CORNERS CIRCLE NORCROSS, GEORGIA 30092-2500 (770) 239-4000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------------- J. NEIL SMITH PRESIDENT AND CHIEF OPERATING OFFICER MELITA INTERNATIONAL CORPORATION 5051 PEACHTREE CORNERS CIRCLE NORCROSS, GEORGIA 30092-2500 (770) 239-4000 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) --------------------- COPIES TO: JOHN FRANKLIN SMITH, ESQ. MARK G. BORDEN, ESQ. LARRY W. SHACKELFORD, ESQ. BRENT B. SILER, ESQ. MORRIS, MANNING & MARTIN, L.L.P. HALE AND DORR LLP 1600 ATLANTA FINANCIAL CENTER 1455 PENNSYLVANIA AVENUE, N.W. 3343 PEACHTREE ROAD, N.E. WASHINGTON, D.C. 20004 ATLANTA, GEORGIA 30326 (202) 942-8400 (404) 233-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement is declared effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------- If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
============================================================================================================ PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF SECURITIES REGISTERED PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ Common Stock, no par value................................ $35,000,000 $10,606.06 ============================================================================================================
(1) Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) under the Securities Act. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MARCH 6, 1997 3,500,000 SHARES MELITA(R) INTERNATIONAL LOGO COMMON STOCK All of the shares of Common Stock offered hereby are being sold by the Company. Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price of the Common Stock will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Application has been made to have the Common Stock approved for listing on the Nasdaq National Market under the symbol "MELI." SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
======================================================================================================== Price to Underwriting Proceeds to Public Discount(1) Company(2) - -------------------------------------------------------------------------------------------------------- Per Share............... $ $ $ Total(3)................ $ $ $ ========================================================================================================
(1) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (2) Before deducting expenses payable by the Company, estimated at $ . (3) The Company has granted to the Underwriters a 30-day option to purchase up to 525,000 additional shares of Common Stock solely to cover over-allotments, if any. If the Underwriters exercise this option in full, the Price to Public will total $ , the Underwriting Discount will total $ and the Proceeds to Company will total $ . See "Underwriting." The shares of Common Stock are offered by the several Underwriters named herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the certificates representing such shares will be made against payment therefor at the office of Montgomery Securities on or about , 1997. ------------------------ MONTGOMERY SECURITIES , 1997 3 --------------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 [ARTWORK/DIAGRAMS DEPICTED IN PROSPECTUS] 1. Inside front page (fold-out) portrays the following: Center: Photograph of a Call Center agent and a customer speaking over the telephone illustrating the Company's concept of "People To People Communication." Arrows to the top, left, bottom and right of the photograph point to additional diagrams. Top: Arrow extending from central photograph points to the word "Applications." Above and to the left of "Applications" is a list of the CTI applications: MPACT, PowerPACT and ActionPACT. Above and to the right of "Applications," the Company's Megellan application is listed. Right: Arrow extending from central photograph points to the words "System Management" which are superimposed over a picture of five overlapping screens generated by PhoneFrame CS Command Post Desktop. Bottom: Arrow extending from central photograph points to the text: "Applications and solutions for customer communications: - Comprehensive Call Center Solutions - Build and Improve Customer Relationships - Increase Agent Productivity - Reduce Operating Costs" Left: Arrow extending from central photograph points to the word "Technology." To the immediate left of "Technology" is a diagram of the Company's call center system. 2. Graphic on page 29 of the prospectus in the "Business" section is labeled "PhoneFrame CS Architecture." The center portion of the graphic depicts a bar labeled "Local Area Network." Below the Local Area Network bar are drawings representing a customer's host computing center, the Company's call processor, the Company's Universal Switch components, the customer's PBX/ACD and a "cloud" labeled "PSTN" (public switch telephone network). Each of these components are linked to the Local Area Network. The Universal Switch, PBX/ACD and PSTN are linked together. Above the Local Area Network bar are drawings representing the Company's Universal Workstations and corresponding telephone sets, the Company's Command Post Windows NT and the Company's Universal Server RISC/6000 Sybase. The telephone sets are connected to the PBX/ACD with a dotted line. The Command Post and the Universal Server each are connected to the Local Area Network. 3. Inside (second to) back page graphics portray a screen generated by the Company's Magellan product. The screen is labeled "Magellan Application Interpreter." The text appearing above the picture of the screen is as follows: "Provides agent with information, not just data.... Magellan(TM) navigates multiple corporate data sources and presents needed information in a Single System Image View(TM). Solutions from basic "screen pops" to sophisticated customer interaction applications can be created and modified on-the-fly without programming. Magellan(TM) allows applications to be developed and deployed quickly, making agents more efficient by presenting them with the information needed to make timely and informed decisions." The image of the "Magellan Application Interpreter" screen is enhanced by text that highlights Magellan's features as follows: - Employs script windows to bring together text and real-time data from multiple resources. - Customer data may be entered with the click of a mouse. - Customizes on-line help functions. - Displays talk time with the call gauge. - Programmable action buttons for background applications. - Buttons may be customized to display specific actions and reactions. - Imports visual elements in graphic boxes. 4. Inside back page is captioned: "Melita's Command Post(TM) graphical desktop lets supervisors monitor call center activity at a glance." Graphics portray a screen generated by the Company's PhoneFrame(R) CS product. The screen is labeled "Production Monitoring." Features of the screen are highlighted by the following text: " - Call List Display Panel. Displays status of active calling lists. - The Tool Bar. Brings up different productivity views to monitor and control the activity of a call center. - Agent Status Legend. User defined legends to choose conditions or calling states. - ViewPort Display Area. Real time production monitoring of agent status using customized floor plans. - Trunk State Display Panel. Graphically depicts enabled and disabled trunk states." 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including "Risk Factors" and the Combined Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. THE COMPANY Melita International Corporation ("Melita" or the "Company") is a leading provider of customer contact and call management systems that enable businesses to automate call center activities and enhance their telephony-based customer interaction. The Company's principal product, PhoneFrame CS, is used by organizations to increase agent productivity, reduce the costs of call center operations and enhance revenue-generating capabilities for a broad range of activities, including debt collection, telemarketing and customer service. PhoneFrame CS is an innovative, comprehensive call center solution based on client/server software that integrates with industry standard computing and telephony infrastructures. The Company's customers include leading organizations in industries such as banking, financial services, retail, communications and others, where businesses are engaged in frequent telephone contact with customers or prospects. In many industries, customer retention costs are significantly lower than the costs of customer acquisition. Consequently, many businesses have come to view long-term customer relationships as a key corporate asset and a source of competitive advantage. To build customer loyalty, organizations are leveraging available customer information by disseminating this information to employees responsible for customer interaction in order to enhance the quality of each customer contact. In addition, organizations recognize that telephony-based interaction has become an increasingly effective means of customer contact as telecommunications costs have decreased and enabling technology such as computer/telephony integration ("CTI") has emerged to automate the customer interaction process. According to industry sources, the CTI, outbound call management and automatic call distribution market segments of the worldwide call center systems market aggregated $2.8 billion in 1996 and are expected to grow at a compound annual growth rate of 19% to $6.7 billion by 2001. The Company's primary target markets, CTI and outbound call management, were approximately $1.3 billion worldwide in 1996 and are together expected to grow at a compound annual growth rate of approximately 28% to $4.4 billion by 2001. The Company provides comprehensive solutions to the call center industry based on a scaleable client/server software architecture capable of supporting installations with more than 500 simultaneous users on a single server. PhoneFrame CS provides comprehensive functionality and a user-friendly application development environment designed to provide increased agent productivity, lower telecommunication costs and low nuisance call rates. The Company's software allows call center system managers to control and monitor call center activity at a glance, providing call flow script creation and editing, call campaign configuration, resource definition and management, and system management and reporting capabilities. The Company's products also provide enhanced interaction with customers through front-end applications which utilize real-time access to information to guide call center agents through each step of the customer interaction process. The Company's call management solution leverages existing investments in call center, information and telephony systems. The Company currently has over 500 systems in operation worldwide. Selected customers include AirTouch Communications, Inc., BancOne Services Corporation, Barclays Bank PLC, Citicorp, Credicard SA Brazil, Dun & Bradstreet Corporation, Grupo Financiero, Bancomer, S.A. de C.V., J.C. Penney Company, National Westminster Bank and Snyder Communications, Inc. The Company sells its products through a direct sales force in the United States, Canada and the United Kingdom. In 1996, the Company derived approximately 21.0% of its total revenues from sales outside the United States. International distribution is largely through direct sales and value-added resellers ("VARs"). --------------------- Melita International Corporation is a Georgia corporation organized in 1979. Unless the context otherwise requires, references in this Prospectus to "Melita" or the "Company" refer to Melita International Corporation and its combined affiliates, Melita Europe Limited and Inventions, Inc. The Company's principal executive offices are located at 5051 Peachtree Corners Circle, Norcross, Georgia 30092-2500, and its telephone number is (770) 239-4000. 3 6 THE OFFERING Common Stock offered by the Company.... 3,500,000 shares Common Stock to be outstanding after the offering........................... 14,643,395 shares(1) Use of proceeds........................ For (i) repayment of notes payable to the Company's principal shareholder, (ii) payment of undistributed S corporation earnings and (iii) general corporate purposes and working capital. Proposed Nasdaq National Market symbol................................. MELI - --------------- (1) Excludes an aggregate of 1,600,000 shares of Common Stock reserved for issuance under the 1992 Stock Option Plan, the 1997 Stock Option Plan and the Stock Purchase Plan (as defined herein), of which 1,106,097 shares were subject to options outstanding as of the date of this Prospectus at a weighted average exercise price of $3.42 per share. See "Management -- Employee Benefit Plans" and Note 6 of the Notes to Combined Financial Statements. SUMMARY COMBINED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Total revenues................................... $24,703 $24,668 $27,156 $35,282 $47,540 Gross margin..................................... 16,059 16,563 17,592 21,270 29,183 Income from operations........................... 3,178 3,649 2,600 4,661 7,348 Pro forma net income (1)......................... $ 2,157 $ 2,356 $ 1,508 $ 2,955 $ 4,782 Pro forma net income per common and common equivalent share............................... $ 0.42 Pro forma weighted average number of common and common equivalent shares outstanding(2)........ 11,395
DECEMBER 31, 1996 --------------------------------------- PRO FORMA ACTUAL PRO FORMA(3) AS ADJUSTED(4) ------- ------------ -------------- BALANCE SHEET DATA: Working capital (deficit).................................. $ 8,124 $(5,403) $ Total assets............................................... 27,069 18,281 Long-term debt, net of current portion..................... -- -- Shareholders' equity (deficit)............................. 10,872 (2,655)
- --------------- (1) Upon the effective date of this offering, the Company will terminate its status as an S corporation. Thereafter, the Company will be subject to federal and state corporate income taxes. Pro forma net income is presented as if the Company had been subject to corporate income taxes for all periods presented. See "Termination of S Corporation Status and Related Distributions" and Notes 1 and 3 of the Notes to Combined Financial Statements. (2) See Note 1 of the Notes to Combined Financial Statements. (3) Pro forma to give effect to the following: (i) the issuance of 3,143,395 shares of Common Stock in connection with the combination (the "Combination") of the Company, Melita Europe Limited ("Melita Europe") and Inventions, Inc. ("Inventions"), which will occur concurrently with the effective date of this offering, (ii) the distribution subsequent to December 31, 1996 of undistributed S corporation earnings of $14.4 million (the "Distribution"), which included a cash distribution of $1.5 million and the issuance of notes payable (the "1997 Notes") of $12.9 million, together with the related accrual of interest of $200,000 (the "Interest Accrual") (iii) the inclusion of current deferred tax assets of $1.1 million due to the termination of the S corporation status (the "Deferred Tax Adjustment") and (iv) the 4 7 repayment at the closing of this offering of a note payable to the principal shareholder (the "1992 Note") with a principal balance of $2.6 million and the 1997 Notes (the "Note Repayment"). See "Termination of S Corporation Status and Related Distributions," " Use of Proceeds," "Capitalization," "Certain Transactions" and Notes 2, 3 and 8 of the Notes to Combined Financial Statements. (4) Pro forma as adjusted to give effect to the sale by the Company of the 3,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $ per share and the receipt of the estimated net proceeds therefrom. See "Use of Proceeds," "Capitalization." FORWARD-LOOKING STATEMENTS Information contained in this Prospectus includes "forward-looking statements" that are based largely on the Company's current expectations and are subject to a number of risks and uncertainties. The Company faces many risks and uncertainties, including those described in this Prospectus under the caption "Risk Factors." Because of these many risks and uncertainties, the Company's actual results may differ materially from any results presented in or implied by the forward-looking statements included in this Prospectus. --------------------- Except as otherwise noted, all information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option, (ii) gives effect to the recapitalization of the Company's Common Stock whereby each share of the Company's outstanding Voting Common Stock and Non-Voting Common Stock (each having no par value per share) will be converted into 1/100 of a share of voting Common Stock, no par value per share ("Common Stock") and (iii) gives effect to the Combination (as defined in footnote 3 above). The recapitalization and the Combination will be effected contemporaneously with the effectiveness of this offering. See "Certain Transactions," "Underwriting" and Note 9 of the Notes to Combined Financial Statements. Cancel Dial(R), Melita(R), PhoneFrame(R), Universal Access(R), Universal Server(R) and Universal Switch(R) are registered trademarks or service marks of the Company. ActionPACT(TM), Customer Care(SM), PhoneFrame Command Post(TM), Magellan(TM), MPACT(TM), PowerPACT(TM), Qflow(TM), Single System Image View(TM), Universal Workstation(TM) and UTP(TM) are trademarks or service marks of the Company. This Prospectus also includes trademarks, service marks and trade names of other companies. 5 8 RISK FACTORS Prospective investors should consider carefully the following factors, in addition to the other information contained in this Prospectus, in evaluating the Company and its business before purchasing shares of Common Stock offered hereby. DEPENDENCE ON SINGLE PRODUCT LINE; RISKS ASSOCIATED WITH SERVICING THE MARKET FOR CALL CENTER SOLUTIONS The Company currently derives substantially all of its revenues from sales of its PhoneFrame CS product and related services. PhoneFrame CS was introduced in early 1995, and the Company expects that this product and related services will continue to account for a substantial portion of the Company's revenues for the foreseeable future. Although the Company intends to enhance these products and develop related products, the Company expects to continue to focus on providing call center systems as its primary line of business. As a result, any factor adversely affecting the market for call center systems in general, or the PhoneFrame CS product in particular, could adversely affect the Company's business, financial condition and results of operations. The market for call center systems is intensely competitive, highly fragmented and subject to rapid change. The Company's future success will depend on continued growth in the market for call center systems, and there can be no assurance that this market will continue to grow. If this market fails to grow or grows more slowly than the Company currently anticipates, the Company's business, financial condition and results of operations would be materially adversely affected. RELIANCE ON SIGNIFICANT CUSTOMERS The Company has derived and believes that it will continue to derive a significant portion of its revenues in any period from a limited number of large corporate clients. During 1996, the Company's five largest customers accounted for approximately 26.6% of the Company's total revenues. In 1995, the Company's five largest customers accounted for approximately 25.0% of its total revenues. Although the specific customers may change from period to period, the Company expects that large sales to a limited number of customers will continue to account for a significant percentage of its revenues in any particular period for the foreseeable future. Therefore, the loss, deferral or cancellation of an order could have a significant impact on the Company's operating results in a particular quarter. There can be no assurance that its current customers will place additional orders, or that the Company will obtain orders of similar magnitude from other customers. The loss of any major customer or any reduction, delay in or cancellation of orders by any such customer or the failure of the Company to market successfully to new customers could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Customers." POTENTIAL VARIABILITY OF QUARTERLY FINANCIAL RESULTS The Company's revenues and operating results could vary substantially from quarter to quarter. Among the factors that could cause these variations are changes in the demand for the Company's products, the level of product and price competition, the length of the Company's sales process, the size and timing of individual transactions, the mix of products and services sold, software defects and other product quality problems, any delay in or cancellation of customer installations, the Company's success in expanding its direct sales force and indirect distribution channels, the timing of new product introductions and enhancements by the Company or its competitors, customer order deferrals in anticipation of enhancements or new products offered by the Company or its competitors, commercial strategies adopted by competitors, changes in foreign currency exchange rates, customers' fiscal constraints, the Company's ability to control costs and general economic conditions. In addition, a limited number of relatively large customer orders has accounted for and is likely to continue to account for a substantial portion of the Company's total revenues in any particular quarter. Sales of the Company's software products generally involve a significant commitment of management attention and resources by prospective customers. Accordingly the Company's sales process is often lengthy and subject to delays associated with the long approval process that accompanies significant customer initiatives or capital expenditures. The Company's sales cycle, from initial trial to complete installation, varies substantially from customer to customer. Because the Company's staffing and operating expenses are based on anticipated revenue levels and a high percentage of the Company's costs are fixed in the short term, variations between 6 9 anticipated order dates and actual order dates, as well as nonrecurring or unanticipated large orders, can cause significant variations in the Company's operating results from quarter to quarter. As a result of the foregoing factors, the Company's operating results for a future quarter may be below the expectations of securities analysts and investors. In such event, the market price of the Company's Common Stock likely will be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations." LIMITED PREDICTABILITY OF SALES DUE TO LENGTHY SALES PROCESS The sale of the Company's products generally requires the Company to provide a significant level of education to prospective customers regarding the use and benefits of the Company's products. In addition, implementation of the Company's products involves a significant commitment of resources by prospective customers and is commonly associated with substantial integration efforts which may be performed by the Company or the customer. For these and other reasons, the length of time between the date of initial contact with the potential customer and the installation and use of the Company's products is typically six months or more, and may be subject to delays over which the Company has little or no control. The Company's implementation cycle could be lengthened in the future by increases in the size and complexity of its installations. Delay in or cancellation of sales could have a material adverse effect on the Company's business, financial condition and results of operations, and could cause the Company's operating results to vary significantly from quarter to quarter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Results of Operations." COMPETITION The market for the Company's products is intensely competitive, fragmented and subject to rapid change. Because the Company's principal products are call management systems, which include both software applications and hardware, the Company competes with a variety of companies which provide these components independently or as an integrated system. The Company's primary competitors in the field of integrated inbound/outbound call management systems are Davox Corporation ("Davox"), EIS International, Inc. ("EIS") and Mosaix International, Inc. ("Mosaix"). The Company competes primarily against Davox and Mosaix in the collections segment of the outbound call management systems market, and against EIS in the telemarketing and telesales segments of the inbound/outbound call management systems market. The Company also competes in the CTI segment of the market, where principal competitors include AnswerSoft, Inc., Genesys Telecommunications Laboratories, Inc., Nabnasset Corporation and Brock International, Inc., among others. The Company may face additional competition from PBX/ACD vendors, other telecommunications equipment providers, telecommunications service providers, computer hardware and software vendors and others. The Company generally faces competition from one or more of its principal competitors on major installations and believes that price is a major factor considered by its prospective customers. Increased competition has contributed significantly to price reductions and the Company expects these price reductions to continue. In addition, increased competition may result in reduced operating margins and loss of market share, either of which could materially adversely affect the Company's business, financial condition and results of operations. Many of the Company's current and potential competitors have significantly greater financial, technical, marketing and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than could the Company. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially adversely affect its business, financial condition and results of operations. See "Business -- Competition." CONTROL BY PRINCIPAL SHAREHOLDER Upon completion of this offering, Aleksander Szlam, the Company's Chairman of the Board, Chief Executive Officer and principal shareholder, will beneficially own approximately 76.1% of the outstanding shares of Common Stock (73.5% if the Underwriters' over-allotment option is exercised in full). Accordingly, 7 10 Mr. Szlam will be in a position to control the Company through his ability to control any election of members of the Board of Directors, as well as any decision whether to merge or sell the assets of the Company, to adopt, amend or repeal the Company's Amended and Restated Articles of Incorporation and Bylaws, or to take other actions requiring the vote or consent of the Company's shareholders. This concentration of ownership could also discourage bids for the shares of Common Stock at a premium to, or create a depressive effect on, the market price of the Common Stock. See "Principal Shareholders" and "Description of Capital Stock." COMPETITIVE MARKET FOR PERSONNEL The future success of the Company's growth strategy will depend to a significant extent on its ability to attract, train, motivate and retain highly skilled professionals, particularly software developers, sales and marketing personnel and other senior technical personnel. An inability to hire such additional qualified personnel could impair the Company's ability to adequately manage and complete its existing sales and to bid for, obtain and implement new sales. Further, the Company must train and manage its growing employee base, requiring an increase in the level of responsibility for both existing and new management personnel. There can be no assurance that the management personnel and systems currently in place will be adequate or that the Company will be able to assimilate new employees successfully. Highly skilled employees with the education and training required by the Company are in high demand. Accordingly, there can be no assurance that the Company will be successful in attracting or retaining current or future employees. See "Business -- Employees." RISKS ASSOCIATED WITH TECHNOLOGICAL ADVANCES; NECESSITY OF DEVELOPING NEW PRODUCTS The market for call center systems is subject to rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. As a result, the Company's position in this market could be eroded rapidly by unforeseen changes in customer requirements for application features, functions and technologies. The Company's growth and future operating results will depend in part upon its ability to enhance existing applications and develop and introduce new applications that meet or exceed technological advances in the marketplace, that meet changing customer requirements, that respond to competitive products and that achieve market acceptance. The Company's product development and testing efforts are expected to require substantial investments by the Company. There can be no assurance the Company will possess sufficient resources to make these necessary investments. The Company has in the past experienced delays both in developing new products and customizing existing products, and there can be no assurance that the Company will not experience difficulties that could cause such delays in the future. In addition, there can be no assurance that such products will meet the requirements of the marketplace and achieve market acceptance, or that the Company's current or future products will conform to industry standards. If the Company is unable, for technological or other reasons, to develop and introduce new and enhanced products in a timely manner, the Company's business, financial condition and results of operations could be materially adversely affected. MANAGEMENT OF GROWTH The Company has recently experienced significant growth in revenue, operations and personnel. Continued growth will place significant demands on its management and other resources. In particular, the Company will have to continue to increase the number of its personnel, particularly skilled technical, marketing and management personnel, and continue to develop and improve its operational, financial, communications and other internal systems. The Company's inability to manage its growth effectively could have a material adverse effect on the quality of the Company's services and projects, its ability to attract and retain key personnel, its business prospects and its results of operations and financial condition. The Company is currently in the process of implementing a new help-desk information system to upgrade its automated customer support capability. No assurance can be given that the implementation of this system will not result in disruptions to the Company's business. In addition, the Company is in the process of implementing a plan to decentralize its sales and support functions throughout existing and planned regional offices. There can be no assurance that the Company will be successful in implementing this decentralization plan or managing the 8 11 transition without disruptions in the sales and support functions or that the new decentralized sales and support organization will be effective. Any disruptions resulting from the implementation of the help-desk information system or the decentralization plan, or the failure to implement these changes in a timely manner, could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Employees" and "Management -- Executive Officers and Directors." INTERNATIONAL OPERATIONS Revenue from sales outside the United States in 1994, 1995 and 1996 accounted for 20.9%, 22.5% and 21.0%, respectively, of the Company's total revenues. International operations are subject to inherent risks, including the impact of possible recessionary environments in economies outside the United States, changes in legal and regulatory requirements including those relating to telemarketing activities, changes in tariffs, seasonality of sales, costs of localizing products for foreign markets, longer accounts receivable collection periods and greater difficulty in accounts receivable collection, difficulties and costs of staffing and managing foreign operations, reduced protection for intellectual property rights in some countries, potentially adverse tax consequences and political and economic instability. There can be no assurance that the Company will be able to sustain or increase international revenue, or that the factors listed above will not have a material adverse impact on the Company's international operations. While the Company's expenses incurred in foreign countries typically are denominated in the local currencies, revenues generated by the Company's international sales typically are paid in U.S. dollars or British pounds. Accordingly, while exposure to currency fluctuations to date has been insignificant, there can be no assurance that fluctuations in currency exchange rates in the future will not have a material adverse impact on the Company's international operations. The Company currently does not engage in currency hedging activities. A significant element of the Company's business strategy is to continue expansion of its operations in international markets. This expansion has required and will continue to require significant management attention and financial resources to develop international sales channels. Because of the difficulty in penetrating new markets, there can be no assurance that the Company will be able to maintain or increase international revenues. To the extent that the Company is unable to do so, the Company's financial condition and results of operations could be materially adversely affected. See "Business -- Strategy." RISK OF SOFTWARE DEFECTS; DEPENDENCE ON THIRD-PARTY SOFTWARE Software products as complex as those offered by the Company may contain errors that may be detected at any point in the products' life cycles. The Company has, in the past, discovered software errors in certain of its products and has experienced delays in shipment of products during the period required to correct these errors. In particular, the call center environment is characterized by a wide variety of standard and non-standard configurations that make pre-release testing for programming or compatibility errors very difficult and time consuming. There can be no assurance that, despite extensive testing by the Company and by current and potential customers, errors will not be found, resulting in a loss of, or delay in, market acceptance and sales, diversion of development resources, injury to the Company's reputation or increased service and warranty cost, any of which could have a material adverse affect on the Company's business, financial condition and results of operations. Certain software used in the Company's products is licensed by the Company from third parties. There can be no assurance that the Company will continue to be able to resell this software under its licenses or, if any licensor terminates its agreement with the Company, that the Company will be able to develop or otherwise procure replacement software from another supplier on a timely basis or on commercially reasonable terms. In addition, such third-party software may contain errors that would be difficult for the Company to detect and correct. POTENTIAL LIABILITY TO CLIENTS The Company's products may be critical to the operations of its clients' businesses and provide benefits that may be difficult to quantify. Any failure in a Company product or a client's system could result in a claim 9 12 for substantial damages against the Company, regardless of the Company's responsibility for such failure. Although the Company attempts to limit contractually its liability for damages arising from product failures or negligent acts or omissions, there can be no assurance the limitations of liability set forth in its contracts will be enforceable in all instances or would otherwise protect the Company from liability for damages. Although the Company maintains general liability insurance coverage, including coverage for product liability and errors or omissions, there can be no assurance that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against the Company that exceed available insurance coverage or changes in the Company's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect the Company's results of operations and financial condition. RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS The Company may in the future engage in selective acquisitions of businesses that are complementary to those of the Company. While the Company has from time to time in the past considered acquisition opportunities, it has never acquired a significant business and has no existing agreements or commitments to effect any acquisition. Accordingly, there can be no assurance that the Company will be able to identify suitable acquisition candidates available for sale at reasonable prices, consummate any acquisition or successfully integrate any acquired business into the Company's operations. Further, acquisitions may involve a number of additional risks, including diversion of management's attention, failure to retain key acquired personnel, unanticipated events or circumstances and legal liabilities, some or all of which could have a material adverse effect on the Company's results of operations and financial condition. Problems with an acquired business could have a material adverse impact on the performance of the Company as a whole. The Company expects to finance any future acquisitions with the proceeds of this offering as well as with possible debt financing, the issuance of equity securities (common or preferred stock) or a combination of the foregoing. There can be no assurance that the Company will be able to arrange adequate financing on acceptable terms. If the Company were to proceed with one or more significant future acquisitions in which the consideration consisted of cash, a substantial portion of the Company's available cash (possibly including a portion of the proceeds of this offering) could be used to consummate the acquisitions. If the Company were to consummate one or more significant acquisitions in which the consideration consisted of stock, shareholders of the Company could suffer significant dilution of their interests in the Company. Many business acquisitions must be accounted for as a purchase. Most of the businesses that might become attractive acquisition candidates for the Company are likely to have significant intangible assets and acquisition of these businesses, if accounted for as a purchase, would typically result in substantial goodwill amortization charges to the Company, reducing future earnings. In addition, such acquisitions could involve non-recurring acquisition-related charges, such as the write-off or write-down of software development costs or other intangible items. TERMINATION OF S CORPORATION STATUS AND SUBSTANTIAL DISTRIBUTION OF OFFERING PROCEEDS TO CURRENT SHAREHOLDERS; OTHER BENEFITS TO PRINCIPAL SHAREHOLDER Since September 1, 1988, the Company has been treated for federal income tax purposes as an S corporation under the Internal Revenue Code of 1986, as amended (the "Code"). Upon the effective date of this offering (the "Termination Date"), the Company will terminate its status as an S corporation under the Code and thereafter will be subject to federal and state income taxes. The Company will use a substantial portion of the proceeds of this offering to make the following payments to its principal shareholder: (i) repayment of the 1992 Note and the 1997 Notes, aggregating approximately $15.4 million, and (ii) a distribution of accumulated 1997 S corporation earnings. Purchasers of Common Stock in this offering will not receive any portion of the S corporation distribution. See "Termination of S Corporation Status and Related Distributions," "Use of Proceeds," "Certain Transactions" and Note 3 of the Notes to Combined Financial Statements. 10 13 REGULATORY ENVIRONMENT Certain uses of outbound call processing systems are regulated by federal, state and foreign laws and regulations. While the Company's systems are generally designed to operate in compliance with these laws and regulations through the use of appropriate calling lists and calling campaign time parameters, compliance with these laws and regulations may limit the usefulness of the Company's products to its customers and potential customers, and these laws and regulations could therefore adversely affect demand for the Company's products. In addition, there can be no assurance that future legislation or regulatory activity further restricting telephone practices, if enacted, would not adversely affect the Company. See "Business -- Regulatory Environment." INTELLECTUAL PROPERTY RIGHTS The Company relies on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect its proprietary rights in its products and technology. There can be no assurance, however, that these measures will be adequate to protect its trade secrets and proprietary technology. Further, the Company may be subject to additional risks as it enters into transactions in countries where intellectual property laws are not well developed or are poorly enforced. Legal protections of the Company's rights may be ineffective in such countries. Litigation to defend and enforce the Company's intellectual property rights could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operations, regardless of the final outcome of such litigation. Despite the Company's efforts to safeguard and maintain its proprietary rights both in the United States and abroad, there can be no assurance that the Company will be successful in doing so or that the steps taken by the Company in this regard will be adequate to deter misappropriation or independent third-party development of the Company's technology or to prevent an unauthorized third party from copying or otherwise obtaining and using the Company's products or technology. There can be no assurance that others will not independently develop similar technologies or duplicate any technology developed by the Company. Any such events could have a material adverse affect on the Company's business, financial condition and results of operations. The Company has entered into agreements with certain of its distributors giving them a limited, non-exclusive right to use portions of the Company's source code to create foreign language versions of the Company's products for distribution in foreign markets. In addition, the Company has entered into agreements with a small number of its customers requiring the Company to place its source code in escrow. These escrow arrangements typically provide that these customers have a limited, non-exclusive right to use such code in the event that there is a bankruptcy proceeding by or against the Company, if the Company ceases to do business or if the Company fails to meet its support obligations. These arrangements may increase the likelihood of misappropriation by third parties. As the number of call management software applications in the industry increases and the functionality of these products further overlaps, software development companies like the Company may increasingly become subject to claims of infringement or misappropriation of the intellectual property rights of others. Although the Company believes that its software components and other intellectual property do not infringe on the intellectual property rights of others, including those of this competitor, there can be no assurance that such a claim will not be asserted against the Company in the future, that assertion of such claims will not result in litigation or that the Company would prevail in such litigation or be able to obtain a license for the use of any infringed intellectual property from a third party on commercially reasonable terms. Furthermore, litigation, regardless of its outcome, could result in substantial cost to the Company, divert management's attention from the Company's operations and delay customer purchasing decisions. Any infringement claim or litigation 11 14 against the Company could, therefore, have a material adverse effect on the Company's results of operations and financial condition. See "Business -- Proprietary Rights." DEPENDENCE ON KEY PERSONNEL The Company's success will depend in large part upon the continued availability of the services of Aleksander Szlam, the Company's Chairman and Chief Executive Officer, and J. Neil Smith, the Company's President and Chief Operating Officer. Although the Company has employment agreements with Mr. Szlam and Mr. Smith, these agreements do not obligate either of them to continue his employment with the Company. There can be no assurance that the Company will be able to retain the services of Messrs. Szlam and Smith. The Company does not maintain key man life insurance on Mr. Szlam or Mr. Smith. The loss of the services of one or both of them would have a material adverse effect on the Company's business, financial condition and results of operations. See "Management." BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS A substantial portion of the net proceeds to be received by the Company in connection with this offering is allocated to working capital and general corporate purposes. Accordingly, management will have broad discretion with respect to the expenditure of such proceeds. Purchasers of shares of Common Stock offered hereby will be entrusting their funds to the Company's management, upon whose judgment they must depend, with limited information concerning the specific working capital requirements and general corporate purposes to which the funds will ultimately be applied. See "Use of Proceeds." CERTAIN ANTI-TAKEOVER PROVISIONS The Board of Directors has authority to issue up to 20,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of the preferred stock without further vote or action by the Company's shareholders. The rights of the holders of the Common Stock will be subject to, and may be adversely affected by, the rights of the holders of preferred stock that may be issued in the future. While the Company has no present intention to issue shares of preferred stock, such issuance could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. In addition, the Company's Amended and Restated Articles of Incorporation and Bylaws contain provisions that may discourage proposals or bids to acquire the Company. The Company's Amended and Restated Articles of Incorporation provide that, commencing with the 1997 Annual Meeting of the Company's shareholders, the Board of Directors will be divided into three classes, as nearly equal in size as possible, with staggered three-year terms. These provisions could have the effect of making it more difficult for a third party to acquire control of the Company, discourage proposals or bids to acquire control of the Company and adversely affect prevailing market prices for the Common Stock. See "Description of Capital Stock -- Certain Articles of Incorporation and Bylaw Provisions" and "Certain Provisions of Georgia Law." SHARES ELIGIBLE FOR FUTURE SALE Upon the closing of this offering, the Company will have 14,643,395 shares of Common Stock outstanding. The 3,500,000 shares of Common Stock sold in this offering will be freely tradable without restriction or limitation under the Securities Act of 1933, as amended (the "Securities Act"), except for shares purchased by "affiliates" (as defined under the Securities Act). The remaining 11,143,395 shares of Common Stock will become eligible for sale beginning in February 1998 subject to the volume and other limitations of Rule 144 under the Securities Act. All of the officers, directors and existing shareholders of the Company are subject to lock-up agreements under which they have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this Prospectus without the prior written consent of Montgomery Securities. Upon completion of this offering, the Company will have 1,600,000 shares of Common Stock reserved for issuance under its stock plans, of which 1,106,097 shares are subject to outstanding options. Promptly following the completion of this offering, the Company intends to file one or more registration statements on Form S-8 to register these shares. Sales of substantial amounts of Common Stock in the public markets, pursuant to Rule 144 or otherwise, or the availability of such shares for sale could 12 15 adversely affect the prevailing market prices for the Common Stock and impair the Company's ability to raise additional capital through the sale of equity securities in the future should it desire to do so. See "Management -- Employee Benefit Plans" and "Shares Eligible for Future Sale." NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock. Although the Company has made application for the quotation of the Common Stock on the Nasdaq National Market, there can be no assurance that an active trading market will develop or be sustained after the offering. The initial public offering price of the Common Stock offered hereby will be determined by negotiation between the Company and the Representatives of the Underwriters and may bear no relationship to the market price of the Common Stock after the offering. The market price of the Common Stock could be subject to significant fluctuations in response to variations in quarterly operating results and other factors. In addition, the securities markets have experienced significant price and volume fluctuations from time to time that have often been unrelated or disproportionate to the operating performance of particular companies. These broad fluctuations may adversely affect the market price of the Common Stock. See "Underwriting." DILUTION The purchasers of the Common Stock offered hereby will experience immediate and significant dilution in the pro forma net tangible book value of the Common Stock from the initial public offering price. See "Dilution." 13 16 TERMINATION OF S CORPORATION STATUS AND RELATED DISTRIBUTIONS Since September 1, 1988, the Company has elected to operate under Subchapter S of the Code and comparable provisions of certain state income tax laws. An S corporation generally is not subject to income tax at the corporate level (with certain exceptions under state income tax laws). Instead, the S corporation's income generally passes through to shareholders and is taxed on their personal income tax returns. As a result, the Company's earnings have been taxed for federal and state income tax purposes, with certain exceptions, directly to the existing shareholders of the Company. Upon the effective date of this offering (the "Termination Date"), the Company will terminate its status as an S corporation under the Code. All undistributed S corporation earnings through the Termination Date will be distributed to the Company's principal shareholder using a portion of the net proceeds of this offering. At December 31, 1996, the undistributed S corporation earnings of the Company were estimated to be $14.4 million. Subsequent to December 31, 1996, the Company distributed these amounts to its principal shareholder, including a distribution of $1.5 million in cash and the issuance of the 1997 Notes having an aggregate principal amount of $12.9 million. The 1997 Notes bear interest at a rate equal to the applicable federal rate under the Code (approximately 7%) and will accrue interest of approximately $200,000 through the expected Termination Date. The 1997 Notes will be repaid in full using a portion of the proceeds of this offering. The Company expects to accumulate additional earnings from January 1, 1997 to the Termination Date. The Company currently estimates that such additional earnings will be between $ million and $ million, although the actual amount of such earnings may vary significantly. These accumulated earnings will be distributed to the principal shareholder using a portion of the net proceeds of this offering. The actual amount of this distribution will be reduced to the extent additional distributions of 1997 accumulated earnings are made by the Company to the principal shareholder prior to the Termination Date with other corporate funds. The principal shareholder has agreed to indemnify the Company should its status as an S Corporation during any portion of the period for which it claimed such status in federal or state income tax filings ever be successfully challenged. See "Risk Factors -- Termination of S Corporation Status and Substantial Distribution of Offering Proceeds to Current Shareholders; Other Benefits to Principal Shareholder," "Use of Proceeds" and "Certain Transactions." In connection with the termination of its S corporation status, the Company will report an increase in earnings which will be recognized in the quarter during which the Termination Date occurs with the addition of approximately $1.1 million in deferred tax assets. 14 17 USE OF PROCEEDS The net proceeds to the Company from the sale of the 3,500,000 shares of Common Stock offered hereby are estimated to be approximately $ million ($ million if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and estimated expenses payable by the Company in connection with the offering. From the net proceeds of the offering, the Company will make the following payments to its principal shareholder: (i) repayment of the $12.9 million principal balance of the 1997 Notes, together with accrued interest thereon which the Company estimates will then be $200,000, (ii) repayment of the 1992 Note, which the Company expects will then have a principal balance of $2.3 million, and (iii) a distribution of all accumulated S corporation earnings for the period from January 1, 1997 through the effective date. The Company currently estimates that such accumulated earnings will be between $ million and $ million, although the actual amount of such earnings may vary significantly. The actual amount of this distribution will be reduced to the extent any prior distributions of 1997 accumulated earnings are made by the Company to its principal shareholder. See "Termination of S Corporation Status and Related Distributions" and "Certain Transactions." The remainder of the net proceeds will be used for working capital and other general corporate purposes. Such purposes may include possible acquisitions of, or investments in, businesses and technologies that are complementary to those of the Company. The Company has no specific agreements, commitments or understandings with respect to any such acquisitions or investments. Pending application of the net proceeds as described above, the Company intends to invest the net proceeds in short-term, interest-bearing securities. See "Risk Factors -- Broad Management Discretion as to Use of Proceeds." DIVIDEND POLICY The Company historically has made substantial distributions to its shareholders related to its S corporation status and the resulting tax payment obligations imposed on its shareholders, including a total of $10.2 million since January 1, 1995. Other than the distribution to be made to the Company's Pre-Offering Shareholders described under "Termination of S Corporation Status and Related Distributions," the Company does not intend to declare or pay cash dividends in the foreseeable future. Management anticipates that all earnings and other cash resources of the Company, if any, will be retained by the Company for investment in its business. 15 18 CAPITALIZATION The following table sets forth the short-term indebtedness and capitalization of the Company at December 31, 1996 on an actual, pro forma and pro forma as adjusted basis. This table should be read in conjunction with the Company's Combined Financial Statements and Notes thereto.
DECEMBER 31, 1996 ----------------------------------- PRO PRO FORMA ACTUAL FORMA(1) AS ADJUSTED(2) ------- -------- -------------- (IN THOUSANDS) Current portion of long term debt........................... $ 2,644 $ 19 $ 19 ======= ======= ====== Long-term debt, net of current portion...................... $ -- $ -- $ -- Shareholders' equity: Preferred stock: Melita International Corporation, no par value, 20,000,000 shares authorized(3), no shares issued or outstanding.......................................... -- -- -- Common stock: Melita International Corporation, no par value; 100,000,000 shares authorized(3); 8,000,000 shares issued and outstanding, actual; 11,143,395 shares issued and outstanding, pro forma; shares issued and outstanding, pro forma as adjusted(4)................ 2 69 Melita Europe Limited, L1 par value; 50,000 shares authorized; 31,128 shares issued and outstanding actual; no shares issued or outstanding pro forma or pro forma as adjusted................................ 46 -- -- Inventions, Inc., $5 par value; 100 shares authorized; 100 shares issued and outstanding actual; no shares issued or outstanding pro forma or pro forma as adjusted............................................. 1 -- -- Additional paid-in capital................................ 20 -- Cumulative foreign currency translation adjustment........ 35 35 Retained earnings......................................... 10,768 (2,571) ------- ------- ------ Total shareholders' equity........................ 10,872 (2,467) ------- ------- ------ Total capitalization......................... $10,872 $(2,467) $ ======= ======= ======
- --------------- (1) Pro forma to give effect to (i) the issuance of 3,143,395 shares of Common Stock in connection with the Combination, (ii) the Distribution and Interest Accrual, (iii) the Deferred Tax Adjustment and (iv) the Note Repayment. See "Termination of S Corporation Status and Related Distributions," "Use of Proceeds," "Certain Transactions" and Notes 2, 3 and 8 of the Notes to Combined Financial Statements included elsewhere in this prospectus. (2) Pro forma as adjusted to give effect to the sale by the Company of the 3,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $ per share and the receipt of the estimated net proceeds therefrom. See "Use of Proceeds." (3) Gives effect to an amendment to the Company's Articles of Incorporation to be filed after December 31, 1996 to increase its authorized capital stock. (4) Actual, pro forma and pro forma as adjusted shares issued and outstanding exclude an aggregate of 1,600,000 shares of Common Stock reserved for issuance under the 1992 Stock Option Plan, the 1997 Stock Option Plan and the Stock Purchase Plan, of which 1,106,097 shares were subject to options outstanding as of the date of this Prospectus at a weighted average exercise price of $3.42 per share. See "Management -- Employee Benefit Plans" and Note 6 of the Notes to Combined Financial Statements. 16 19 DILUTION The net tangible book value of the Common Stock as of December 31, 1996 was approximately $10.9 million or $1.35 per share. The pro forma net tangible book deficit of the Common Stock as of December 31, 1996 was approximately $(2.5 million) or $(.24) per share. The pro forma net tangible book deficit per share represents the excess of the Company's total liabilities over total tangible assets, divided by the total number of shares of Common Stock outstanding, after giving effect to the Combination, the Distribution and the Deferred Tax Adjustment. After giving effect to the sale by the Company of the 3,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $ per share, and the receipt of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company (total tangible assets less total liabilities) as of December 31, 1996 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing shareholders and an immediate dilution in pro forma net tangible book value of $ per share to purchasers of Common Stock in this offering, as illustrated in the following table: Assumed initial public offering price per share....................... $ -------- Net tangible book value per share as of December 31, 1996................................................... $ 1.35 Decrease per share attributable to pro forma adjustments............................................ 1.59 -------- Pro forma net tangible book deficit per share as of December 31, 1996...................................... (.24) Increase per share attributable to new investors.......... -------- Pro forma net tangible book value per share as of December 31, 1996 after the offering.................................................. $ -------- Dilution per share to new investors................................... $ ========
The following table sets forth, as of December 31, 1996, on a pro forma basis after giving effect to the issuance of shares of Common Stock in connection with the Combination, the number of shares of Common Stock issued by the Company and the total consideration and the average price per share paid by the existing shareholders and new investors, assuming the sale by the Company of 3,500,000 shares of Common Stock at an assumed initial public offering price of $ per share, and before deducting the estimated underwriting discount and estimated offering expenses:
SHARES PURCHASED TOTAL CONSIDERATION --------------------- -------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- -------- -------- ------------- Existing shareholders....... 11,143,395 76.1% $69,000 % $0.01 New investors............... 3,500,000 23.9 $ ---------- ----- ------- ----- Total............. 14,643,395 100.0% $ 100.0% ========== ===== ======= =====
Assuming full exercise of the Underwriters' over-allotment option, the percentage of shares held by existing shareholders would be 73.5% of the total number of shares of Common Stock to be outstanding after the offering, and the number of shares held by new investors would be increased to 4,025,000 shares, or 26.5% of the total number of shares of Common Stock to be outstanding after the offering. See "Principal Shareholders." Following the closing of this offering, the Company will have outstanding options to acquire approximately 1,106,097 shares of Common Stock at exercise prices ranging from $2.75 to $5.50 per share and a weighted average exercise price of $3.42 per share. The exercise of these options would have the effect of increasing the net tangible book value dilution to new investors in this offering. 17 20 SELECTED COMBINED FINANCIAL DATA The selected combined financial data of the Company set forth below should be read in conjunction with the Combined Financial Statements of the Company, including the Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The combined statement of operations data for the years ended December 31, 1994, 1995 and 1996 and the combined balance sheet data as of December 31, 1995 and 1996 are derived from, and are qualified by reference to, the combined financial statements audited by Arthur Andersen LLP and included elsewhere in this Prospectus. The combined statement of operations data for the years ended December 31, 1992 and 1993 and the combined balance sheet data as of December 31, 1992, 1993 and 1994 are derived from unaudited combined financial statements.
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net revenues: Product................................................... $19,047 $17,709 $18,186 $24,620 $32,077 Service................................................... 5,656 6,959 8,970 10,662 15,463 ------- ------- ------- ------- ------- Total revenues...................................... 24,703 24,668 27,156 35,282 47,540 Cost of revenues: Product................................................... 5,298 5,181 6,310 8,730 11,494 Service................................................... 3,346 2,924 3,254 5,282 6,863 ------- ------- ------- ------- ------- Total cost of revenues.............................. 8,644 8,105 9,564 14,012 18,357 ------- ------- ------- ------- ------- Gross margin................................................ 16,059 16,563 17,592 21,270 29,183 Operating expenses: Research and development.................................. 3,784 3,386 3,660 4,050 5,070 Selling, general and administrative....................... 9,097 9,528 11,332 12,559 16,765 ------- ------- ------- ------- ------- Total operating expenses............................ 12,881 12,914 14,992 16,609 21,835 ------- ------- ------- ------- ------- Income from operations...................................... 3,178 3,649 2,600 4,661 7,348 Other income (expense), net................................. 216 186 46 88 261 ------- ------- ------- ------- ------- Income before income taxes.................................. 3,394 3,835 2,646 4,749 7,609 Income tax provision (benefit).............................. (19) 25 (26) -- -- ------- ------- ------- ------- ------- Net income before pro forma income tax provision............ 3,413 3,810 2,672 4,749 7,609 Pro forma income taxes(1)................................... 1,256 1,454 1,164 1,794 2,827 ------- ------- ------- ------- ------- Pro forma net income(1)..................................... $ 2,157 $ 2,356 $ 1,508 $ 2,955 $ 4,782 ======= ======= ======= ======= ======= Pro forma net income per common and common equivalent share..................................................... $0.42 ======= Pro forma weighted average common and common equivalent shares outstanding(2)..................................... 11,395 =======
DECEMBER 31, PRO FORMA ----------------------------------------------- DECEMBER 31, 1992 1993 1994 1995 1996 1996(3) ------- ------- ------- ------- ------- ------------ (IN THOUSANDS) BALANCE SHEET DATA: Working capital (deficit)................................. $ 7,831 $ 8,955 $ 8,594 $ 6,904 $ 8,124 $(5,403) Total assets.............................................. 13,076 15,679 17,635 20,928 27,069 18,281 Long-term debt, net of current portion.................... 3,176 3,111 3,068 2,644 -- -- Total shareholders' equity (deficit)...................... 6,143 7,385 7,103 6,657 10,872 (2,655)
- --------------- (1) Upon the effective date of this offering, the Company will terminate its status as an S corporation. Thereafter, the Company will be subject to federal and state income taxes. Pro forma net income is presented as if the Company had been subject to corporate income taxes for all periods presented. See "Termination of S Corporation Status and Related Distributions," and Notes 1 and 3 of the Notes to Combined Financial Statements. (2) See Note 1 of the Notes to Combined Financial Statements. (3) Presented on a pro forma basis to give effect to (i) the issuance of 3,143,395 shares of Common Stock in connection with the Combination, (ii) the Distribution and Interest Accrual, (iii) the Deferred Tax Adjustment and (iv) the Note Repayment. See "Termination of S Corporation Status and Related Distributions," "Use of Proceeds," "Capitalization," "Certain Transactions" and Notes 2, 3 and 8 of the Notes to Combined Financial Statements. 18 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Melita is a leading provider of customer contact and call center systems that enable customers to operate efficient call centers. The Company's principal product, PhoneFrame CS, is an integrated system comprised of both hardware and software based on open, client/server architecture. Melita offers periodic ongoing maintenance support of its products. The Company also offers fee-based installation, training and consulting services. Historically, the Company has internally generated the funds necessary for its growth through profits and cash provided by operating activities. In 1988, the Company introduced its first call management solution, which was DOS-based, driving revenue growth from $10.4 million to $24.7 million during the period from 1989 to 1992. The Company introduced Stacatto, a UNIX-based client/server version of its call center software, in 1992. Due to the slow market acceptance of client/server call center solutions, the Company's revenues were relatively flat from 1992 to 1994. In 1994, the Company introduced Interlude, a more open, scaleable and standards-based version of the product, and in 1995 the Company made significant additions to its management team, sales and marketing efforts and installation and support capabilities, which contributed to growth of 29.9% in total revenues from 1994 to 1995. The Company's revenues are derived primarily from two sources: (i) product license fees for the use of the Company's software products and revenues from sales of related computer and telephony hardware to utilize the software and (ii) service fees for ongoing system support, maintenance, installation, training and consulting services. The Company recognizes product revenue upon shipment of the product and when the Company has no significant obligations yet to be satisfied. Revenues from maintenance contracts are recognized ratably over the term of the support period. Revenues from consulting, installation and training services are recognized as the services are performed. Cost of product revenues primarily includes cost of material and assembly of components for products shipped, together with salaries and benefits of production personnel. Cost of service revenues consists primarily of salaries and benefits of customer support and field service personnel. Cost of service revenues includes related operating costs such as training, computer support and travel costs. The Company contracts with third parties to provide maintenance on hardware provided as part of the Company's systems. Research and development expenses primarily consist of salaries and benefits of engineering personnel involved with software and voice processing technology development. Also included are costs for subcontracted development projects and expendable equipment purchases. Selling, general and administrative expenses consist primarily of salaries, commissions and benefits of sales, marketing, administrative, finance and human resources personnel. Also included are marketing expenditures, travel, rent and other costs. Total revenues from sales outside the United States accounted for 20.9%, 22.5%, and 21.0% of the Company's total revenues for 1994, 1995 and 1996, respectively. The Company relies on VARs to sell, install and support its products in countries outside of the United States, Canada and the United Kingdom. The Company's international revenues are primarily denominated in U.S. dollars or British pounds. The Company's expenses incurred in foreign countries are typically denominated in local currencies. The Company has recognized foreign exchange gains (losses) of approximately $31,000, $(2,000) and $162,000 in 1994, 1995 and 1996, respectively. There can be no assurance that future fluctuations in currency exchange rates will not have a material adverse impact on the Company's future international operations. 19 22 RESULTS OF OPERATIONS The following table sets forth certain statement of operations data as a percentage of total revenues for the periods indicated:
YEAR ENDED DECEMBER 31, ----------------------- 1994 1995 1996 ----- ----- ----- Net revenues: Product................................................... 67.0% 69.8% 67.5% Service................................................... 33.0 30.2 32.5 ----- ----- ----- Total revenues.................................... 100.0 100.0 100.0 ----- ----- ----- Cost of revenues: Product................................................... 23.2 24.7 24.2 Service................................................... 12.0 15.0 14.4 ----- ----- ----- Total cost of revenues............................ 35.2 39.7 38.6 ----- ----- ----- Gross margin................................................ 64.8 60.3 61.4 ----- ----- ----- Operating expenses: Research and development.................................. 13.5 11.5 10.7 Selling, general and administrative....................... 41.7 35.6 35.2 ----- ----- ----- Total operating expenses.......................... 55.2 47.1 45.9 ----- ----- ----- Income from operations...................................... 9.6 13.2 15.5 Other income (expense), net................................. 0.2 0.3 0.5 ----- ----- ----- Income before income taxes.................................. 9.8 13.5 16.0 Income tax benefit.......................................... 0.1 -- -- ----- ----- ----- Net income before pro forma income taxes.................... 9.9 13.5 16.0 ----- ----- ----- Pro forma income taxes...................................... 4.3 5.1 6.0 ----- ----- ----- Pro forma net income........................................ 5.6% 8.4% 10.0% ===== ===== =====
The following table sets forth, for each component of net revenues, the cost of such revenues as a percentage of such revenues for the periods indicated:
YEAR ENDED DECEMBER 31, ----------------------- 1994 1995 1996 ----- ----- ----- Cost of product revenues.................................... 34.7% 35.5% 35.8% Cost of service revenues.................................... 36.3% 49.5% 44.4%
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Revenues. Total revenues increased 34.7% to $47.5 million in 1996 from $35.3 million in 1995. Revenues from product sales increased 30.3% to $32.1 million in 1996, or 67.5% of total revenues, from $24.6 million in 1995, or 69.8% of total revenues. The increase in product revenues was due to strong demand for the Company's PhoneFrame CS product introduced in the first half of 1995, increased sales and marketing efforts and the introduction of Magellan CS in the fourth quarter of 1996. Service revenues increased 45.0% to $15.5 million in 1996, or 32.5% of total revenues, from $10.7 million in 1995, or 30.2% of total revenues. Service revenues increased primarily due to an increase in the number of contractual maintenance agreements and, to a lesser degree, from revenues generated by installation and training. Cost of Revenues. Total cost of revenues was $18.4 million in 1996, representing a 31.0% increase over total cost of revenues of $14.0 million in 1995. Total cost of revenues represented 38.6% and 39.7% of total revenues in 1996 and 1995, respectively. Cost of product revenues was $11.5 million in 1996, or 35.8% of product revenues, increasing by 31.7% from $8.7 million in 1995, or 35.5% of product revenues. Cost of product revenues increased slightly as a percentage of product revenues due to lower per unit sales prices, which were partially offset by product cost reductions. Cost of service revenues was $6.9 million in 1996, or 20 23 44.4% of service revenues, increasing by 29.9% from $5.3 million in 1995, or 49.5% of service revenues. The cost of service revenues increased as the Company hired additional support and installation staff to support the increased sales volume. Cost of service revenues, as a percentage of service revenues, decreased 5.1 percentage points due to operational efficiencies, reduced third-party maintenance fees for field support of computer equipment resold by the Company and improved features within the software to facilitate the installation process. Research and Development. The Company's research and development expenses increased by 25.2% to $5.1 million in 1996, or 10.7% of total revenues, from $4.1 million in 1995, or 11.5% of total revenues. The increase resulted primarily from the addition of developers to support the Company's new product development efforts, which resulted in the release of PhoneFrame CS 2.0 and Magellan CS in 1996. Research and development expenses decreased as a percentage of total revenues in 1996 due to the growth in total revenues in 1996. Selling, General and Administrative. Selling, general and administrative expenses were $16.8 million in 1996, representing a 33.5% increase over selling, general and administrative expenses of $12.6 million in 1995. The increase was the result of an increase in sales commissions corresponding to an increase in revenues and additional staff hired to support the higher sales levels in 1996. Selling, general and administrative expenses were 35.2% and 35.6% of total revenues in 1996 and 1995, respectively. Income from Operations. As a result of the foregoing factors, income from operations was $7.3 million in 1996, representing a 57.6% increase over income from operations of $4.7 million in 1995. Operating income increased as a percentage of total revenues from 13.2% in 1995 to 15.5% in 1996. Other Income, Net. Other income, net increased to $261,000 in 1996 from $88,000 in 1995. The increase was primarily attributable to foreign exchange gains, as the British pound strengthened against the U.S. dollar. Pro Forma Income Taxes. Pro forma income taxes were $2.8 million in 1996 as compared to $1.8 million in 1995, as a result of the Company's increased net income before income taxes in 1996. The Company's pro forma effective tax rate was 37.2% in 1996, compared to 37.8% in 1995. Pro Forma Net Income. Pro forma net income was $4.8 million in 1996, representing a 61.8% increase over pro forma net income of $3.0 million in 1995. As a percentage of total revenues, pro forma net income increased from 8.4% in 1995 to 10.0% in 1996. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Revenues. Total revenues increased 29.9% to $35.3 million in 1995 from $27.2 million in 1994. Revenues from product sales increased 35.4% to $24.6 million in 1995, or 69.8% of total revenues, from $18.2 million in 1994, or 67.0% of total revenues. The increase in product revenues was due to increased sales volume attributable primarily to demand for the Company's first release of PhoneFrame CS introduced in 1995. Service revenues increased 18.9% to $10.7 million in 1995, or 30.2% of total revenues, from $9.0 million in 1994, or 33.0% of total revenues. Service revenues increased primarily due to an increase in the number of contractual maintenance agreements and, to a lesser degree, from revenues generated by installation of systems and upgrading, but declined as a percentage of total revenues due to the timing of product sales. Cost of Revenues. Total cost of revenues was $14.0 million in 1995, representing a 46.5% increase over total cost of revenues of $9.6 million in 1994. Total cost of revenues represented 39.7% and 35.2% of total revenues in 1995 and 1994, respectively. Cost of product revenues was $8.7 million in 1995, or 35.5% of product revenues, increasing by 38.4% from $6.3 million in 1994, or 34.7% of product revenues. Cost of service revenues was $5.3 million in 1995, or 49.5% of service revenues, increasing by 62.3% from $3.3 million in 1994, or 36.3% of service revenues. The cost of service revenues increased as the Company hired additional support and installation staff to support the increased sales volume. Cost of service revenues, as a percentage of service revenues, increased 13.2 percentage points, as the Company increased its customer service and field service support groups by over 31.0% to improve the Company's level of service and, to a lesser degree, an increase in the cost of third-party maintenance for field support of computer equipment resold by the Company. 21 24 Research and Development. The Company's research and development expenses increased by 10.7% to $4.1 million in 1995, or 11.5% of total revenues, from $3.7 million in 1994, or 13.5% of total revenues. The increase in expenditures resulted from the addition of developers to support the Company's new product development efforts. Research and development expenses decreased as a percentage of total revenues in 1995. Selling, General and Administrative. Selling, general and administrative expenses were $12.6 million in 1995, representing a 10.8% increase over selling, general and administrative expenses of $11.3 million in 1994. The increase was the result of the increase in sales commissions corresponding to an increase in revenues and additional personnel hired to support the higher sales levels in 1995. Selling, general and administrative expenses were 35.6% and 41.7% of total revenues in 1995 and 1994, respectively. Selling, general and administrative expenses decreased as a percentage of total revenues primarily as a result of cost containment initiatives in general and administrative expenses. Income from Operations. As a result of the foregoing factors, income from operations was $4.7 million in 1995, representing a 79.2% increase over income from operations of $2.6 million in 1994. Operating income increased as a percentage of total revenues from 9.6% in 1994 to 13.2% in 1995. Other Income, Net. Other income, net increased to $88,000 in 1995 from $46,000 in 1994. The increase was primarily attributable to increased interest income due to the Company's higher average investment balances. Pro Forma Income Taxes. Pro forma income taxes were $1.8 million in 1995 as compared to $1.2 million in 1994, as a result of the Company's increased net income before income taxes in 1995. The Company's pro forma effective tax rate was 37.8% in 1995, compared to 43.6% in 1994, due to non-deductible foreign losses in 1994. Pro Forma Net Income. Pro forma net income was $3.0 million in 1995, representing a 96.0% increase over pro forma net income of $1.5 million in 1994. As a percentage of total revenues, pro forma net income increased from 5.6% in 1994 to 8.4% for 1995. 22 25 QUARTERLY RESULTS OF OPERATIONS The following table presents certain unaudited quarterly statement of operations data for each of the last eight quarters. This information is derived from unaudited combined financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of that information. The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period.
QUARTER ENDED ------------------------------------------------------------------------------- 1995 1996 -------------------------------------- -------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------- ------- -------- ------- ------- ------- -------- ------- (IN THOUSANDS) Net revenues: Product............................... $5,698 $5,198 $6,051 $ 7,673 $ 7,691 $ 8,108 $ 7,428 $ 8,850 Service............................... 2,191 2,467 2,729 3,275 3,330 3,778 4,161 4,194 ------ ------ ------ ------- ------- ------- ------- ------- Total revenues................. 7,889 7,665 8,780 10,948 11,021 11,886 11,589 13,044 ------ ------ ------ ------- ------- ------- ------- ------- Cost of revenues: Product............................... 1,867 1,905 2,471 2,487 2,449 2,990 2,660 3,395 Service............................... 1,010 1,037 1,260 1,975 1,439 1,733 1,902 1,789 ------ ------ ------ ------- ------- ------- ------- ------- Total cost of revenues......... 2,877 2,942 3,731 4,462 3,888 4,723 4,562 5,184 ------ ------ ------ ------- ------- ------- ------- ------- Gross margin............................ 5,012 4,723 5,049 6,486 7,133 7,163 7,027 7,860 ------ ------ ------ ------- ------- ------- ------- ------- Operating expenses: Research and development.............. 1,024 885 901 1,240 945 1,151 1,409 1,565 Selling, general and administrative... 2,842 2,998 3,072 3,647 4,137 3,992 4,212 4,424 ------ ------ ------ ------- ------- ------- ------- ------- Total operating expenses....... 3,866 3,883 3,973 4,887 5,082 5,143 5,621 5,989 ------ ------ ------ ------- ------- ------- ------- ------- Income from operations.................. 1,146 840 1,076 1,599 2,051 2,020 1,406 1,871 Other income (expense), net............. (1) 34 41 14 (11) 54 20 198 ------ ------ ------ ------- ------- ------- ------- ------- Income before pro forma income taxes.... 1,145 874 1,117 1,613 2,040 2,074 1,426 2,069 Income tax benefit...................... -- -- -- -- -- -- -- -- ------ ------ ------ ------- ------- ------- ------- ------- Net income before income taxes.......... 1,145 874 1,117 1,613 2,040 2,074 1,426 2,069 Pro forma income taxes.................. 432 330 422 610 762 775 517 773 ------ ------ ------ ------- ------- ------- ------- ------- Pro forma net income.................... $ 713 $ 544 $ 695 $ 1,003 $ 1,278 $ 1,299 $ 909 $ 1,296 ====== ====== ====== ======= ======= ======= ======= =======
QUARTER ENDED ------------------------------------------------------------------------------- 1995 1996 -------------------------------------- -------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 ------- ------- -------- ------- ------- ------- -------- ------- (AS A PERCENTAGE OF TOTAL NET REVENUES) Net revenues: Product............................... 72.2% 67.7% 68.9% 70.1% 69.8% 68.2% 64.1% 67.8% Service............................... 27.8 32.3 31.1 29.9 30.2 31.8 35.9 32.2 ------ ------ ------ ------- ------- ------- ------- ------- Total revenues................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ------ ------ ------ ------- ------- ------- ------- ------- Cost of revenues: Product............................... 23.7 24.9 28.1 22.7 22.2 25.2 23.0 26.0 Service............................... 12.8 13.6 14.4 18.0 13.1 14.6 16.4 13.7 ------ ------ ------ ------- ------- ------- ------- ------- Total cost of revenues......... 36.5 38.5 42.5 40.7 35.3 39.8 39.4 39.7 ------ ------ ------ ------- ------- ------- ------- ------- Gross margin............................ 63.5 61.5 57.5 59.3 64.7 60.2 60.6 60.3 ------ ------ ------ ------- ------- ------- ------- ------- Operating expenses: Research and development.............. 13.0 11.5 10.3 11.3 8.6 9.7 12.2 12.0 Selling, general and administrative... 36.0 39.6 35.0 33.0 37.5 33.6 36.3 33.9 ------ ------ ------ ------- ------- ------- ------- ------- Total operating expenses....... 49.0 51.1 45.3 44.3 46.1 43.3 48.5 45.9 ------ ------ ------ ------- ------- ------- ------- ------- Income from operations.................. 14.5 10.4 12.2 15.0 18.6 16.9 12.1 14.4 Other income (expense), net............. -- 0.4 0.5 0.1 (0.1) 0.5 0.2 1.5 ------ ------ ------ ------- ------- ------- ------- ------- Income before pro forma income taxes.... 14.5 10.8 12.7 15.1 18.5 17.4 12.3 15.9 Income tax benefit...................... -- -- -- -- -- -- -- -- Net income before income taxes.......... 14.5 10.8 12.7 15.1 18.5 17.4 12.3 15.9 Pro forma income taxes.................. 5.5 4.1 4.8 5.7 6.9 6.5 4.5 5.9 ------ ------ ------ ------- ------- ------- ------- ------- Pro forma net income.................... 9.0% 6.7% 7.9% 9.4% 11.6% 10.9% 7.8% 10.0% ====== ====== ====== ======= ======= ======= ======= =======
23 26 The Company's revenues and operating results could vary substantially from quarter to quarter. Among the factors that could cause these variations are changes in the demand for the Company's products, the level of product and price competition, the length of the Company's sales process, the size and timing of individual transactions, the mix of products and services sold, software defects and other product quality problems, any delay in or cancellation of customer installations, the Company's success in expanding its direct sales force and indirect distribution channels, the timing of new product introductions and enhancements by the Company or its competitors, customer order deferrals in anticipation of enhancements or new products offered by the Company or its competitors, commercial strategies adopted by competitors, changes in foreign currency exchange rates, customers' fiscal constraints, the Company's ability to control costs and general economic conditions. In addition, a limited number of relatively large customer orders has accounted for and is likely to continue to account for a substantial portion of the Company's total revenues in any particular quarter. Sales of the Company's software products generally involve a significant commitment of management attention and resources by prospective customers. Accordingly the Company's sales process is often lengthy and subject to delays associated with the long approval process that accompanies significant customer initiatives or capital expenditures. The Company's sales cycle, from initial trial to complete installation, varies substantially from customer to customer. Because the Company's staffing and operating expenses are based on anticipated revenue levels and a high percentage of the Company's costs are fixed in the short term, variations between anticipated order dates and actual order dates, as well as nonrecurring or unanticipated large orders, can cause significant variations in the Company's operating results from quarter to quarter. See "Risk Factors -- Variability of Quarterly Financial Results." LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations to date primarily through internally generated cash flow. The Company's operating activities generated cash of $5.1 million in 1994, $7.5 million in 1995 and $9.3 million in 1996. In 1996, the Company's cash was generated by operating activities and an increase in customer deposits, partially offset by an increase in accounts receivable. Both customer deposits and accounts receivables increased due to the Company's increased business volume. The Company's investing activities used cash of $800,000 in 1994, $1.7 million in 1995 and $1.5 million in 1996. The Company's use of cash was primarily for the purchase of capital equipment to support the Company's growth. The Company's financing activities used cash of $3.0 million in 1994, $5.2 million in 1995 and $3.8 million in 1996. The primary use of cash was distributions to the Company's shareholders. As of December 31, 1996, the Company had working capital of $8.1 million. Cash and cash equivalents were $9.8 million. The Company estimates that it will incur capital expenditures of approximately $2.0 million in 1997, of which $800,000 will be incurred to complete an upgrade of the internal Customer Care Center. The Company anticipates that its existing cash balances and funds anticipated to be generated from operations, combined with the net proceeds from this offering and interest thereon, will be adequate to satisfy its working capital requirements for its current and planned operations for at least the next twelve months. NEW ACCOUNTING PRONOUNCEMENTS In October of 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets to Be Disposed of." The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not have a significant impact on the Company's combined financial statements. In October 1995, the Financial Accounting Standards Board issued Statement No. 123 ("SFAS 123") which establishes a fair value based method for accounting for stock-based compensation plans. With respect to stock options granted to employees, SFAS 123 permits companies to continue using the accounting method promulgated by the Accounting Principals Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," to measure compensation or, alternatively, to adopt the fair value based method prescribed by 24 27 SFAS 123. If the APB 25 method is continued, pro forma footnote disclosures are required as if SFAS 123 accounting provisions were followed. Management has determined not to adopt the SFAS 123 accounting recognition provisions. Accordingly, SFAS 123 will not have any impact on the Company's financial statements, except for the addition of the required footnote disclosures. See Note 6 of the Notes to Combined Financial Statements. The American Institute of Certified Public Accountants has issued an exposure draft to amend the provisions of Statement of Position 91-1, "Software Revenue Recognition." The adoption of the standards in the current version of the exposure draft would not be expected to have a significant impact on the Company's combined financial statements. 25 28 BUSINESS OVERVIEW Melita International Corporation is a leading provider of customer contact and call management systems that enable businesses to automate call center activities and enhance their telephony-based customer interaction. The Company's principal product, PhoneFrame CS, is used by organizations to increase agent productivity, reduce the costs of call center operations and enhance revenue generating capabilities for a broad range of activities, including debt collection, telemarketing and customer service. PhoneFrame CS is a comprehensive call center solution based on client/server software that integrates with industry standard computer and telephony hardware. The Company's customers include leading organizations in industries such as banking, financial services, retail, communications and others, where businesses are engaged in frequent telephone contact with customers or prospects. The Company currently has over 500 systems in operation worldwide. Selected customers include AirTouch Communications, Inc., BancOne Services Corporation, Barclays Bank PLC, Citicorp, Credicard SA Brazil, Dun & Bradstreet Corporation, Grupo Financiero Bancomer, S.A de C.V., J.C. Penney Company, National Westminster Bank and Snyder Communications, Inc. The Company sells its products through a direct sales force in the United States, Canada and the United Kingdom. In 1996, the Company derived approximately 21.0% of its total revenues from sales outside the United States. International distribution is largely through direct sales and VARs. INDUSTRY BACKGROUND Long-term customer relationships are critical to the success of businesses operating in an increasingly competitive global marketplace. As customers become more sophisticated and demanding in the level of service they require, businesses are striving to develop and improve customer relationships as a means to distinguish their products and services. This effort requires businesses to use every opportunity to interact with customers, from marketing and sales activities to post-sales service, support and collections. Effective customer interaction can build customer loyalty, which in turn can lead to reduced customer retention costs and increased revenue potential. As organizations seek to improve the quality of their interaction with customers across the enterprise, the use of information systems to facilitate this interaction has become a core competency. In recent years, telephony-based customer interaction has become a more effective means of communication for organizations. Increased usage of telephony-based customer interaction has been facilitated by decreasing telecommunications costs, the proliferation of toll-free telephone numbers and the introduction of new enabling technologies, such as computer/telephony integration("CTI"). CTI automates the generation and management of telephony-based customer contacts while providing real-time access to computer-based information resources. This automation is provided by call centers that consist of specialized software and hardware that integrate telephony platforms and computer systems. According to industry sources, the CTI, outbound call management and automatic call distribution market segments of the worldwide call center systems market aggregated $2.8 billion in 1996 and are expected to grow at a compound annual growth rate of 19% to $6.7 billion by 2001. The Company's primary target markets, CTI and outbound call management, were approximately $1.3 billion worldwide in 1996 and are together expected to grow at a compound annual growth rate of approximately 28% to $4.4 billion by 2001. Call centers enable agents to process a steady flow of outbound or inbound telephone contacts relating to products or services. Call centers generally consist of supervisor and agent workstations linked to a central telephone switch and computer system. Call centers historically have focused either on conducting outbound calls, for functions such as collections and product sales, or managing inbound calls, for functions such as product support, order processing and customer service. Inbound call centers utilize an interactive voice response ("IVR") unit and an automatic call distribution ("ACD") system that together screen and route incoming calls through the call center. Outbound call centers incorporate predictive dialing software to automate outbound dialing. Increasingly, call center applications feature dynamic inbound/outbound or 26 29 "blended" functionality which permits agents to be automatically switched between inbound and outbound calls as inbound call demand varies. Common examples of outbound call center applications include debt collection for banks, finance companies and large retailers, credit card marketing and customer support activities such as customer surveys. According to industry sources, collections and telemarketing software applications accounted for 80% of all outbound call center software application revenues worldwide in 1996. A key objective of organizations operating outbound call centers is maximizing the time spent by agents on the telephone with customers or potential customers while minimizing the "nuisance call" rate. A nuisance call is a live contact which the call management system must either put on hold or disconnect because no agent is available. High nuisance call rates caused by overdialing result in high telecommunications costs and poor customer relations. Call center systems which utilize sophisticated predictive dialing software can minimize the nuisance call rate while maintaining high agent productivity. The Company believes that this capability is essential to organizations operating call centers. Call center systems were originally developed as centralized, mainframe-based information systems, which offered a platform to enable the automation of many functions, including inbound call distribution, outbound dialing, and limited database management. These systems were expensive, provided limited functionality and productivity and were generally closed and proprietary. With the advent of distributed computing environments, call center systems have been developed which utilize CTI and the flexibility and openness of client/server architectures. These developments have allowed companies to incorporate leading hardware and software products from multiple vendors, have significantly reduced the cost of implementation and have increased system functionality and flexibility. Call centers have evolved into a core competency for businesses engaged in frequent telephone contacts with customers or prospects. In order to maximize the return on their call center investment, businesses require call center solutions that: (i) provide call center agents with the tools needed to effectively manage interaction with their customers; (ii) provide agents transparent access to information across the enterprise; (iii) guide agents through a complex set of customer interaction scenarios; (iv) fully integrate existing information and telephone systems; (v) are adaptable to the changing needs of particular businesses and applications; (vi) are scaleable to support large volumes of calls; and (vii) permit the gathering of valuable information concerning customer needs, buying patterns and demographics. Customer-focused organizations are seeking call center solutions which provide state-of-the-art functionality while remaining adaptable to emerging technologies. THE MELITA SOLUTION Melita provides customer contact and call management systems that automate outbound or blended call centers, enabling its customers to enhance telephony-based customer interaction. The Company's principal product, PhoneFrame CS, is a scaleable, integrated software and hardware solution based on a distributed client/server architecture capable of supporting installations with more than 500 simultaneous users on a single server. PhoneFrame CS provides comprehensive functionality and a user-friendly application development environment enabling organizations to conduct effective telephone calling programs for a broad range of activities, including debt collection, telemarketing and customer service. The Melita solution provides: - High agent productivity, low nuisance call rates and low telecommunications costs through patented predictive dialing and inbound/outbound call blending functionality; - Enhanced agent interaction with customers through front-end software applications which utilize real-time access to information to guide agents through each step of the customer interaction; - Dynamic campaign development, deployment and modification through powerful, easy-to-use script generation and application development software. - The ability to leverage existing investment in call center systems and adapt to emerging technologies through an open, scaleable, distributed client/server architecture. The Company believes that a critical element of the comprehensive solutions it provides is its underlying philosophy of Customer Care. The Company's products represent a critical link between the business 27 30 enterprise and its customers, providing the business with a solution that allows it to provide the best customer care. The Company's Customer Care philosophy focuses on enhancing the quality of people-to-people communication and is reflected in all facets of the Company's operations. The Company has incorporated features into its existing products which reflect this philosophy, including its patented predictive dialing features, Cancel Dial and dynamic inbound/outbound call blending functionality. As part of its commitment to Customer Care, the Company intends to continue to develop and introduce new products and features to improve the ability of a business to interact with its customers. STRATEGY The Company's objective is to be a leading provider of customer contact and call management systems. The Company's strategy to achieve this objective includes the following key elements: Leverage Installed Base of Customers: The Company currently targets customers in the banking, financial services, retail, communications and service bureau industries. In 1996, 56.6% of the Company's product revenues were from sales to its existing customer base. The Company will continue to focus sales and marketing efforts on its installed base of customers. The Company also intends to continue to leverage its penetration of currently targeted vertical markets by using its existing customers as a reference base to gain new customers. Maintain Technology Leadership: The Company believes it is a technology leader in the field of call center software and CTI, having pioneered many of the industry's fundamental call center technologies. The Company owns 15 U.S. patents, with six additional U.S. patents pending, and 19 related foreign patents covering various processes and technologies utilized in call management systems. The Company believes that in the future advanced call management systems will consist primarily of innovative software utilizing off-the-shelf hardware. As a result, the Company intends to focus its development efforts on software, with an emphasis on customer interaction and distributed applications. Continue to Focus on Providing Comprehensive Call Center Solutions: The Company provides system design, application configuration and integration services in conjunction with the installation of its call center solutions. The Company believes its ability to provide comprehensive call center systems integration is an important factor in the purchasing decisions of customers, and it intends to continue its emphasis on providing these design and integration services. Continue to Expand Sales and Marketing: The Company intends to pursue an increased share of the market for call management systems by hiring additional sales and marketing personnel. The Company plans to open additional sales offices both domestically and internationally and is implementing a program aimed at targeted vertical markets. In addition, the Company is establishing a national account program which is intended to focus sales and marketing efforts on large, multinational corporations. Increase Penetration of International Markets: In 1996, the Company generated 21.0% of its total revenues from sales outside the United States and has 26 employees dedicated to its international operations. The Company currently has relationships with 10 VARs in Europe, Latin America and the Pacific Rim. The Company intends to leverage these relationships in selected international markets to enhance its revenue base. The Company also intends to expand its international operations through hiring additional personnel, opening new offices and forming additional relationships with VARs in Latin America and the Pacific Rim. Pursue Adjacent Markets: The Company has developed a leadership position in the collections segment of the outbound call management systems market. In 1996, approximately 80% of the Company's total revenues were attributable to systems sold for collections applications, with the remainder attributed primarily to telemarketing and telesales applications. The Company recently introduced Magellan CS which leverages the existing dynamic inbound/outbound functionality of PhoneFrame CS to target applications in telemarketing and telesales. The Company seeks to leverage its existing dynamic inbound/outbound functionality to gain market share in the overall call management systems market. The Company believes the distinction between inbound and outbound call management 28 31 systems will diminish and that it is well positioned to provide both inbound and outbound call management solutions. PRODUCTS The Company's principal product, PhoneFrame CS, is an integrated suite of client/server software applications and hardware that provides outbound and blended call management solutions. PhoneFrame CS software components are based on open standards, allowing integration with varied and complex user environments. PhoneFrame CS is sold to organizations that operate outbound and blended call centers. These call centers require solutions that integrate with existing communication and information systems including mainframe-based information systems, local area networks, agent workstations and PBX/ACDs. Utilizing customer records residing in an organization's existing databases, PhoneFrame CS automates customer contacts and guides agents through the customer interaction process. ARCHITECTURE OVERVIEW CHART 29 32 The key components of PhoneFrame CS are the Universal Server, Command Post, Universal Workstation and the Universal Switch.
PHONEFRAME CS PRODUCT COMPONENT DESCRIPTION UNIVERSAL SERVER Server software that controls and coordinates system operation. Used to manage calling list data, call attempt and contact history, agent profiles, time zone and area code data, call processing, agent and supervisor activity. PLATFORM: IBM RISC/6000, AIX operating system, Sybase database COMMAND POST Suite of software applications used by system managers to configure, operate, monitor and report on system activities utilizing an interactive GUI. PLATFORM: Pentium PC, Windows NT UNIVERSAL WORKSTATION Client-based software which runs on the agent workstation and manages the client session with the UNIVERSAL SERVER for each call routed to the agent workstation. The UNIVERSAL WORKSTATION utilizes one of the following options: UNIVERSAL ACCESS Software that controls screen presentation and data manipulation and allows the agent to work within an enterprise information system. MTACCESS Software that runs in the background and interacts with screen presentation and data manipulation applications provided by the existing enterprise information systems. MAGELLAN CS Software that controls Windows GUI screen presentation on the agent workstation. Provides read/write access to data in customer's existing systems. Additionally, MAGELLAN BUILDER, which resides on the COMMAND POST or a dedicated PC, facilitates development of customer interaction and call flow applications featuring an interactive GUI. PLATFORM: PC, Windows 3.1, 95 and NT UNIVERSAL SWITCH Proprietary switching component of the system. Interfaces with existing telephony equipment or directly with PSTN using digital or analog interfaces. CALL PROCESSOR PC-based SWITCH and VOICE PROCESSOR controller and client-based software interface to UNIVERSAL SERVER. VOICE PROCESSOR Software that performs call progress analysis and call characterization for each call attempt (e.g., busy signal, ringback signal, fax machine, modem, voicemail, answering machine, live contact). Also provides voice messaging services for inbound and outbound applications. PLATFORM: PC, Dialogic voice processing cards SWITCH High speed, real-time digital switching matrix. PLATFORM: Motorola 68030 CPU, VME-Bus, OS/9 operating system MPACT Software option for the Universal Server that communicates with leading PBX/ACDs through CTI links, using one or both of the following: PowerPACT Software option that provides ability to use an existing PBX/ACD for switching and/or call progress analysis in place of the Voice Processor and Switch. ActionPACT Software option that monitors service levels on a call center's ACD via its CTI links and dynamically and automatically move agents from outbound applications to inbound applications and vice versa.
The Universal Server software is the heart of each PhoneFrame CS system, providing centralized control for the operation and management of the system. It integrates a Sybase database to provide calling list management, and to store operational data for real-time and historical reporting. TCP/IP is used as the transport protocol for communication with all client components of the system. The Universal Server also 30 33 includes software that facilitates integration with popular user platforms to perform extended functions such as real-time calling list data acquisition, dynamic call blending, Internet callback and enterprise reporting. The Command Post is a suite of software applications used for call flow script creation and editing, call campaign configuration, resource definition and management, agent and production monitoring and system reporting. Command Post runs on Windows NT and consists of software modules that automate the operation and monitoring of the system. Builder is used to automate data exchange with user databases and create calling campaigns. QFlow is used to implement user-defined strategies for calling campaigns based on real-time events such as time of day, hit rate and list penetration. Production Monitoring provides an interactive graphical representation of the call center that allows managers to access, monitor and control system resources such as agents and trunks. The Report Scheduler automates the generation of system reports. Reports can be written in any Windows SQL-based report writer. The Company's Universal Workstation is client-based software which runs on the agent workstation, and is available in three different software options: Universal Access, MTAccess and Magellan CS. Each option supports Microsoft's Dynamic Data Exchange ("DDE") and industry standard Enhanced High Level Language Application Programming Interface ("EHLLAPI") for exchanging information with external applications. Each Universal Workstation software option meets different needs for agent workstation functionality. Universal Access for Windows and Universal Access for OS/2 manage the client session with the Universal Server for each call routed to an agent workstation and provide basic information about the called party, including customer identification or account number. Universal Access facilitates automated access to other enterprise information systems and can be configured to toggle between applications. MTAccess interfaces with screen presentation and data manipulation applications software provided by the customer. Similar to the Universal Access options, MTAccess manages the client session with the Universal Server for each call routed to the agent workstation. Initial contact information about the called party is provided to the agent through the customer's application. Magellan CS is the Company's recently introduced Universal Workstation software. Magellan CS consists of two components, Magellan Interpreter and Magellan Builder. Magellan Builder allows system managers to create and dynamically modify call flow applications, complete with many features of a Windows GUI, such as buttons and checklists, without any programming. Magellan Interpreter provides agents with a composite view of enterprise-wide customer information through a Windows GUI. Agent interaction with customers is guided by Magellan CS applications, which provide agents with the customer information necessary to make timely, informed customer interaction decisions. Magellan CS supports EHLLAPI, DDE, object linking and embedding ("OLE"), open database connectivity ("ODBC"), telephony application programming interface ("TAPI") and telephony services application programming interface ("TSAPI") for accessing customers' information and telephony systems. Additionally, through the use of resource files, Magellan CS has been designed to facilitate localization for international deployment. The Universal Switch is the Company's proprietary switching platform that interfaces with existing telephone equipment or directly with the Public Switched Telephone Network ("PSTN") using digital and analog interfaces. All inbound and outbound calls can be processed through the Universal Switch, which performs two major functions: call processing and switching. The Call Processor serves as the controller and client software interface to the Universal Server. The Voice Processor performs all telephone call processing including call progress analysis, which determines the type of call result that has been achieved. Call progress analysis utilizes a digital signal processing algorithm which detects various tone and voice patterns including busy signals, ringback signals, fax machines, modems, voice mail and answering machines as well as live contacts. The Voice Processor also provides voice messaging services for inbound and outbound applications. The Switch performs high speed switching to connect live contacts to the next available, appropriate agent in real time. The Company's MPACT software option enables PhoneFrame CS to be integrated with industry leading PBX/ACDs through the use of CTI links. PowerPACT allows PhoneFrame CS to use a customer's existing 31 34 PBX/ACD in place of the Switch and Voice Processor components. The Voice Processor, in conjunction with PowerPACT software, can provide call progress analysis for PBX/ACDs that do not provide this functionality. ActionPACT provides the ability for PhoneFrame CS to monitor service levels on a call center's PBX/ACD via its CTI link and dynamically and automatically move agents from outbound applications to inbound applications and vice versa. PowerPACT and ActionPACT allow users to leverage their investment in installed PBX/ACD equipment. SERVICES A significant portion of the Company's revenues is derived from on-going system support, maintenance, installation, training, customization and consulting services. Upon purchase of a system, customers generally enter into a maintenance agreement covering on-going system support and software upgrades. These agreements can have a duration of up to five years. In addition, the Company provides installation, training, customization and consulting services during the implementation process. For additional fees, the Company will from time to time provide additional training or consulting services at the customer's request. The Customer Care Group consists of the Customer Care Center ("CCC"), the Technical Assistance Center ("TAC"), the Applications Integration Engineers and the Training and Customer Education Division. The CCC provides 24 x 7 customer support by telephone. The TAC provides high level technical support, coordinates new product development and beta tests, and provides additional expert support for the other groups within the service function. The Applications Integration Engineers provide configuration, scripting, reconfiguration, custom application development and other special customer services. The Training and Customer Education Division develops documentation for installation and support of the Company's products, provides on-site and off-site training to customers through an array of classes, and offers consulting services. Introductory training classes are provided as part of each initial system purchase and advanced classes are provided for additional fees. As of January 31, 1997, the Customer Care Group employed a total of 72 employees. The Field Implementation Services Group has responsibility for systems design, sales support, implementation and project management and serves as the customer installation liaison. The Field Implementation Services Group is divided into three regional divisions covering the United States and Canada, and one international division. International support is also provided by technical support personnel located in the United Kingdom and the Company's international VARs. As of January 31, 1997, this group employed a total of 38 employees. The Company contracts with IBM to provide local hardware support in the United States and Canada, and can dispatch local personnel from IBM national service centers to address hardware issues. SALES AND MARKETING The Company sells its products primarily through a direct sales channel and through VARs. Sales in the United States, Canada and the United Kingdom are conducted primarily through direct channels. Distribution in other countries is conducted through a combination of direct sales and VARs. The Company has sales offices located in Atlanta, Boston, Dallas, Los Angeles, Philadelphia, Salt Lake City, White Plains, London and Toronto. The Company's marketing activities include product management, product marketing, direct marketing, public relations, press and analyst communications, event support and management of the Company's Web site. The Company's Business Development Group is responsible for developing joint marketing and co- development relationships with call center industry suppliers. The Company is also implementing a program aimed at specific vertical markets. In addition, the Company is establishing a national account program which is intended to focus sales and marketing efforts on large, multinational corporations. As of January 1, 1997, the Company's sales personnel, including the Sales, Marketing, Product Management and Business Development groups consisted of 54 employees worldwide. 32 35 The Company's customers independently operate domestic and international User Groups, which have approximately 300 and 35 members, respectively. The domestic User Group was formed in 1990, and is managed by an independent board of directors that coordinate User Group activity. The international User Group was formed in 1991. Activities of both the domestic and international User Groups include an annual User Group conference. Additionally, the domestic User Group conducts regional User Group meetings typically focused on common applications and call center opportunities. The 1996 annual domestic User Group conference was attended by approximately 260 people. Although the Company is not a sponsor of the User Group conferences, it generally sends Company employees who conduct seminars, product demonstrations and training sessions. CUSTOMERS The Company's call management solutions are used by organizations in a broad range of industries. Since the introduction of PhoneFrame CS in 1995, the Company has licensed its software for use on over 5,000 agent workstations and has shipped over 100 systems. The Company's top five customers accounted for 25.0% of the Company's total revenues in 1995. The Company's top five customers accounted for 26.6% of the Company's total revenues in 1996. Although specific customers may change from period to period, the Company expects that large sales to a limited number of customers will continue to account for a significant percentage of its revenues in any particular period for the foreseeable future. The following table sets forth certain of the Company's customers who have purchased $200,000 or more in products and services from the Company during the two year period ended December 31, 1996:
CUSTOMERS APPLICATIONS --------- ------------ BANKING BancOne Services Corporation Citicorp Collections Banco Popular de Puerto Rico Credicard SA Brazil Telemarketing Grupo Financiero Bancomer, S.A. de C.V. First USA Bank Customer Service Barclays Bank PLC (UK) Marine Midland Bank Fraud Detection Chemical Bank National Westminster Bank Chevy Chase, FSB Royal Bank of Canada FINANCIAL SERVICES Americredit Financial Services, Inc. Green Tree Financial Collections AmSouth Consumer Collections Corporation Telemarketing Countrywide Collections Guardian National Acceptance Customer Service Countrywide Funding Corporation Prospect Outreach Dun & Bradstreet Corporation Intuition, Inc. Marketing Strong Capital Management, Inc. Business Information Surveys RETAIL Circuit City Stores, Inc. J.C. Penney Company, Inc. Collections Eagle Managed Care Mercantile Stores Company, Inc. Telemarketing Financial Management Control The Foschini Group (PTY), Hudson's Bay Company Limited COMMUNICATIONS AirTouch Communications, Inc. Comcast Cellular Communications Continental Cablevision of Broward County, FL IDT Corporation Telemarketing Collections Customer Service Customer Welcome Campaigns SERVICE BUREAU The Call Centre Ltd. (UK) Snyder Communications, Inc. Collections Decisions Group Ltd. (UK) Works & Lentz, Inc. Telemarketing National Action Financial Services, Inc. Customer Service Fundraising Sales Loan Servicing Appointment Scheduling
TECHNOLOGY, RESEARCH AND PRODUCT DEVELOPMENT The Company intends to continue investment in research and development to maintain its position as a leader in call center technology. The Company has developed a client/server software architecture that 33 36 facilitates the deployment, configuration and interoperability of its call center solutions. The design of the system provides three core sets of services: (i) user interface presentation and navigation, (ii) server-based system management services, and (iii) telephone call processing services, including the Company's patented predictive dialing and dynamic call blending features. The Company's products are based on an open architecture and industry standards and provide seamless integration with third-party systems or customers' existing technology infrastructure. The Company will seek to develop future products that adhere to existing and emerging standards. The presentation and navigation components of the software have been implemented using Windows GUI guidelines. Usability labs and focus groups are used to define interface requirements and verify ease of use. TCP/IP is used as the transport layer for all client/server communication. Adherence to Winsock and other standards facilitates integration with third-party desktop applications and protocol stacks. The Company is working to broaden the incorporation of Simple Network Management Protocol ("SNMP") into its product architecture to facilitate enterprise-wide network management for both computer and telephony components. The Company's telephony hardware and software have been designed using industry standards and the Company intends to continue this approach. The Company's systems use standard analog and digital connectivity to telecommunications equipment and services. The Company's newest generation of agent workstation software, Magellan CS, supports the evolving telephony application program interfaces TAPI and TSAPI, and future products are expected to support those interfaces as well. CTI links to various PBX/ACDs are often proprietary and the Company therefore uses various interfaces such as CallPath, CallBridge, ASAI, Meridian Link and the Application Bridge to facilitate integration with various switching platforms. Magellan CS, released in 1996, and Magellan SA, which the Company currently plans to release in 1997, have been developed using object oriented methods and technology. Magellan SA is a version of the Company's Magellan CS product that will provide the functionality of Magellan CS to call center systems not employing PhoneFrame CS. The Company expects Magellan SA will be used for a variety of call center applications, including inbound applications, in which an outbound call management system is not necessary or is already installed. Magellan SA is intended to allow system managers to develop applications which present a uniform Windows GUI independent of the application. Each application can be developed by the system manager with scripting, data processing and presentation and telephony services specific to the application while providing agents with a consistent presentation. Like Magellan CS, Magellan SA will support EHLLAPI, DDE, OLE, ODBC, TAPI and TSAPI for access to customers' information and telephony systems. The Company is currently developing the Universal Telephony Platform ("UTP"), a new subsystem which incorporates the functionality of a telephony switch and voice processor. The UTP has been designed using the Common Object Request Broker Architecture ("CORBA") to support distributed objects in an open systems environment. UTP runs on Windows NT and uses off-the-shelf voice processing components. Asynchronous Transfer Mode ("ATM") technology is used to link multiple UTP components across standard ATM networks, providing seamless, multi-site resource allocation, management and utilization. SNMP is used to provide standards based network management. As of January 31, 1997, the Company's research and development and quality assurance staffs consisted of 42 employees. The Company's total expenses for research and development for 1994, 1995 and 1996 were $3.7 million, $4.1 million, and $5.1 million, respectively. The Company anticipates that it will continue to commit substantial resources to research and development in the future. See "Risk Factors -- Risks Associated with Technological Advances; Necessity of Developing New Products." COMPETITION The market for the Company's products is intensely competitive, fragmented and subject to rapid change. Because the Company's principal products are call center systems, which include both software applications and hardware, the Company competes with a variety of companies which provide these components independently or as an integrated system. The Company's principal competitors in the field of integrated inbound/outbound call management systems are Davox, EIS and Mosaix. The Company competes primarily against Davox and Mosaix in the collections segment of the call management systems market, and against EIS 34 37 in the telemarketing and telesales segments of the call management systems market. The Company also competes in the CTI segment of the market, where principal competitors include AnswerSoft, Inc., Genesys Telecommunications Laboratories, Inc., Nabnasset Corporation and Brock International, Inc., among others. The Company may face additional competition from PBX/ACD vendors, other telecommunications equipment providers, telecommunications service providers, computer hardware and software vendors and others. The Company generally faces competition from one or more of its principal competitors on major installations and believes that price is a major factor considered by its prospective customers. Many of the Company's current and potential competitors have significantly greater financial, technical, marketing and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote more resources to the development, promotion and sales of products than the Company. Competition from these or other sources could result in price reductions and loss of market share which could materially adversely affect the Company's business, financial condition and results of operations. The Company believes that the primary competitive factors affecting its markets include product features such as flexibility, scalability, interoperability, functionality and ease of use, as well as reputation, quality, performance, price and customer service and support. See "Risk Factors -- Competition." REGULATORY ENVIRONMENT Certain uses of outbound call management systems are regulated by federal, state and foreign law. The Federal Telephone Consumer Protection Act (the "TCPA") prohibits the use of automatic dialing equipment to call emergency telephone lines, health care and similar facility patient telephone lines, and telephone lines where the called party is charged for incoming calls, such as those used by pager and cellular phone services. The TCPA prohibits use of such equipment to engage two or more lines of a multi-line business simultaneously. Among other things, the TCPA required the Federal Communications Commission ("FCC") to create regulations protecting residential telephone subscribers from unwanted telephone solicitations. The rules adopted by the FCC require that telemarketers maintain a company-specific "do-not-call list" which contains the names and numbers of residential subscribers who do not want to receive calls. An entity which has an "established business relationship" with a party it calls and tax-exempt nonprofit organizations are exempt from do-not-call lists. The rules also require that telemarketers may call consumers only after 8 a.m. and before 9 p.m., local time. Certain states have enacted similar laws limiting access to telephone subscribers who object to receiving solicitations. Fair Debt Collection Practices Act ("FDCPA") limits communication by certain debt collectors with consumers only after 8:00 a.m. and before 9:00 p.m., local time, and not at the consumer's place of business. Many of the Company's customers are exempt from the FDCPA. Although compliance with these laws may limit the potential use of the Company's products in some respects, the Company's systems can be programmed to operate automatically in full compliance with these laws through the use of appropriate calling lists and calling campaign time parameters. There can be no assurance, however, that future legislation further restricting telephone solicitation practices, if enacted, would not adversely affect the Company. See "Risk Factors -- Regulatory Environment." PROPRIETARY RIGHTS The Company relies on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect its proprietary rights in its products and technology. The Company holds 15 United States patents, with six additional U.S. patents pending, and 19 related foreign patents, including several patents covering various processes and technologies utilized in call management systems. These patents cover the Company's proprietary implementations of features such as inbound/outbound call blending, call progress analysis, screen pops of the called person's account information and Cancel Dial. The Company also has a number of pending patent applications on call technology innovations for which patents have not issued. In many cases, the Company has also received or applied for patents in other countries covering the innovations covered by existing patents or patent applications. With certain exceptions, the Company historically has not actively pursued infringements of these patents. There can be no assurance that any future attempt by the Company to enforce its patents would be successful or would result in royalties which exceed the cost of such enforcement efforts, or that the Company will be able 35 38 to detect all instances of infringement. The Company generally enters into confidentiality agreements with its employees, consultants, clients and potential clients and limits access to, and distribution of, its proprietary information. The Company maintains trademarks and service marks to identify its products, development tools and service offerings and relies upon trademark and trade dress laws to protect its proprietary rights in these marks. The Company has entered into agreements with certain of its distributors giving them a limited, non-exclusive right to use portions of the Company's source code to create foreign language versions of the Company's products for distribution in foreign markets. In addition, the Company has entered into agreements with a small number of its customers requiring the Company to place its source code in escrow. These escrow arrangements typically provide that these customers have a limited, non-exclusive right to use such code in the event that there is a bankruptcy proceeding by or against the Company, if the Company ceases to do business or if the Company fails to meet its support obligations. These arrangements may increase the likelihood of misappropriation by third parties. The Company may be subject to additional risks as it enters into transactions in countries where intellectual property laws are not well developed or are poorly enforced. Legal protections of the Company's rights may be ineffective in such countries. Litigation to defend and enforce the Company's intellectual property rights could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operations, regardless of the final outcome of such litigation. Despite the Company's efforts to safeguard and maintain its proprietary rights both in the United States and abroad, there can be no assurance that the Company will be successful in doing so, or that the steps taken by the Company in this regard will be adequate to deter misappropriation or independent third-party development of the Company's technology or to prevent an unauthorized third party from copying or otherwise obtaining and using the Company's products or technology. Any such events could have a material adverse effect on the Company's business, financial condition and results of operations. As the number of call center software applications in the industry increases and the functionality of these products further overlaps, software development companies similar to the Company may increasingly become subject to claims of infringement or misappropriation of the intellectual property rights of others. Although the Company believes that its software components and other intellectual property do not infringe on the intellectual property rights of others, there can be no assurance that such a claim will not be asserted against the Company in the future, that assertion of such claims will not result in litigation or that the Company would prevail in such litigation or be able to obtain a license for the use of any infringed intellectual property from a third party on commercially reasonable terms. Furthermore, litigation, regardless of its outcome, could result in substantial cost to the Company and divert management's attention from the Company's operations. Any infringement claim or litigation against the Company could, therefore, have a materially adverse affect on the Company's results of operations and financial condition. EMPLOYEES As of January 31, 1997, the Company had 236 full-time employees, of which 215 were based in the United States and 21 were based in other countries. None of the employees of the Company is covered by a collectively bargaining agreement. The Company considers its relations with its employees to be good. The Company believes its future success will depend in large part on its ability to recruit and retain qualified employees, especially experienced software engineering personnel. The competition for such personnel is intense, and there can be no assurance that the Company will be successful in retaining or recruiting key personnel. See "Risk Factors -- Competitive Market for Personnel." PROPERTIES The Company's principal administrative, sales, marketing, support, and research and development facility is located in 100,000 square feet of modern office space in Norcross, Georgia. This facility is leased to the Company through 2005, and approximately 75% of the space is presently actively utilized. The facility is 36 39 owned by a partnership controlled by the Company's Chairman of the Board, Chief Executive Officer and principal shareholder. See "Certain Transactions." The Company also leases space for seven sales and support centers located throughout the United States and in London. Management believes its current facilities are adequate to meet its needs through the next twelve months and that, if required, suitable additional or alternative space will be available to accommodate expansion of the Company's operations on commercially reasonable terms. LEGAL PROCEEDINGS One of the Company's customers has filed suit in the Circuit Court for Knox County, Tennessee asserting, among other things, that the Company misrepresented the functionality of its products and breached its contract with the customer for delivery of its products and claiming not less than $2.0 million in damages. The Company intends to vigorously defend this action and, based upon information currently available, believes that the action will not have a material impact on the Company. However, because the proceedings are at a preliminary stage and discovery has not yet begun, the Company cannot predict the ultimate outcome of this suit and there can be no assurance that the Company will be successful in the proceedings. 37 40 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION - ---- --- -------- Aleksander Szlam............... 45 Chairman of the Board and Chief Executive Officer J. Neil Smith.................. 56 President, Chief Operating Officer and Director Mark B. Adams.................. 45 Vice President -- Finance, Chief Financial Officer William K. Dumont.............. 47 Vice President -- Sales Lee H. Davies.................. 53 Vice President -- Operations Dean A. Trumbull............... 36 Vice President -- Advanced Technology John A. Lamb................... 44 Vice President -- New Business Development A. Scott Anderson.............. 41 Vice President -- International John M. Goodeve-Docker......... 49 Managing Director of Melita Europe Dan K. Lowring................. 36 Director -- Finance, Secretary and Treasurer
Aleksander Szlam founded the Company in 1979 and has served as Chairman of the Board and Chief Executive Officer of the Company since its inception. Mr. Szlam also has served as Chairman of the Board, President and Chief Executive Officer of Inventions since 1987, and Chairman of the Board of Melita Europe since 1991. Prior to founding Melita, Mr. Szlam worked as a design engineer and scientist at Lockheed Corporation, NCR and Solid State Systems. J. Neil Smith has served as President, Chief Operating Officer and a director of the Company since January 1995. Prior to joining the Company, Mr. Smith served as Chairman of the Board, President and Chief Executive Officer of American Technical Services Group, Inc., a systems integration company, from 1987 to 1994. Mark B. Adams has served as Vice President -- Finance and Chief Financial Officer of the Company since September 1996. From 1993 to 1996, Mr. Adams served as Executive Vice President, Finance and Chief Financial Officer of INITIAL Contract Services, a building services company. From 1989 to 1993, Mr. Adams served as Vice President, Finance for Suntory Water Group, a consumer products company. Mr. Adams is a member of the American Institute of Certified Public Accountants and is a Certified Public Accountant in the State of Georgia. William K. Dumont has served as Vice President -- Sales of the Company since December 1996. From 1994 to 1996, Mr. Dumont served as Regional Manager for Octel Communications Corporation, and from 1990 to 1994 he served as Regional Vice President of VMX, Inc., both of which are voice processing companies. Lee H. Davies has served as Vice President -- Operations of the Company since September 1995. Prior to joining the Company, Mr. Davies served as Vice President of Sales, Marketing and Customer Support for Aristacom International, Inc., an inbound call center software company, from 1994 to 1995. From 1991 to 1994, Mr. Davies served as a marketing director for Digital Equipment Corporation. Dean A. Trumbull has served as Vice President -- Advanced Technology of the Company since October 1994. Prior to joining the Company, Mr. Trumbull served as a software engineering project leader and call processing group manager for Intecom, Inc., a telecommunications corporation, from 1983 to 1994, and, during 1994, as Software Development Manager for its multimedia software subsidiary, Incitz Incorporated. John A. Lamb has served as Vice President -- New Business Development of the Company since September 1996, and was Director of Special Projects of the Company from February 1996 to September 1996. From January 1995 to November 1995, he was Vice President, Research and Development of Microhelp, Inc., a software development company. From 1990 to 1995, he held various positions in the sales and engineering departments of the Company. 38 41 A. Scott Anderson has served as Vice President -- International of the Company since February 1997. From 1995 to 1997, Mr. Anderson served as Senior Vice President -- International Sales of S2 Systems, Inc., a software subsidiary of Stratus Computer, Inc., a data communications software and development services company. He served as Director of International Sales of S2 Systems during 1995. Prior to that time, he was Director of International Operations of BellSouth Systems Integration, a division of BellSouth Enterprises, from 1992 until its acquisition by S2 Systems in 1994. John M. Goodeve-Docker has served as Managing Director of Melita Europe since June 1995. He served as Deputy Managing Director for Melita Europe from January 1994 to June 1995 and as Business Development Director from November 1992 to December 1993. Prior to joining the Company, Mr. Goodeve-Docker served as General Manager of Trend Communications Ltd., an information technology data communications manufacturer and distributor in the U.K., from 1991 to 1992. Dan K. Lowring has served as Director -- Finance of the Company since July 1993, and as Secretary and Treasurer of the Company since January 1997. From March 1993 to July 1993, he served as Controller of the Company, and from October 1990 to March 1993 he served as Manager, Finance of the Company. The Company intends to add at least two independent members to its Board of Directors within 90 days after the date of this Prospectus. It will be necessary for the Company to appoint these directors within the 90 day time period in order to maintain its Nasdaq National Market listing. Failure to appoint two such directors could result in a delisting of the Common Stock from the Nasdaq National Market. Beginning with the 1997 annual meeting of shareholders, the Board of Directors will be divided into three classes, Class I, Class II and Class III, each of whose members will serve for a staggered three-year term. At each annual meeting of shareholders, after the 1997 annual meeting, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the initial Class I, Class II and Class III directors will expire upon the election and qualification of successor directors at the annual meeting of shareholders held following the end of calendar years 1997, 1998 and 1999, respectively. See "Management -- Agreements with Employees" and "Description of Capital Stock -- Certain Provisions of Articles of Incorporation and Bylaws." There are no family relationships between any of the directors or executive officers of the Company. COMMITTEES OF THE BOARD OF DIRECTORS The Company's Board of Directors intends to establish an Executive Committee, an Audit Committee and a Compensation Committee. The Executive Committee will be empowered to exercise all authority of the Board of Directors of the Company, except as limited by the Georgia Business Corporation Code ("GBCC"). Under Georgia law, the Executive Committee may not, among other things, approve or propose to shareholders actions required to be approved by shareholders, fill vacancies on the Board of Directors, amend the articles of incorporation or bylaws or approve a plan of merger. The Company expects that the Executive Committee will include Messrs. Szlam and Smith. The Audit Committee will be responsible for recommending independent auditors, reviewing with the independent auditors the scope and results of the audit engagement, monitoring the Company's financial policies and control procedures, and reviewing and monitoring the provisions of nonaudit services by the Company's auditors. The Compensation Committee will be responsible for reviewing and recommending salaries, bonuses and other compensation for the Company's executive officers. The Compensation Committee also will be responsible for administering the Company's stock option and stock purchase plans and for establishing the terms and conditions of all stock options and purchase rights granted under these plans. At least two of the new independent directors will be appointed to each of the Audit and Compensation Committees at the time they are elected to the Board of the Directors of the Company. DIRECTOR COMPENSATION Prior to this offering, no member of the Board of Directors of the Company received compensation for service on the Board. Following the consummation of the offering, the Company expects to pay the non-employee directors an annual retainer for serving on the Board of Directors, plus fees for each board meeting attended and each committee meeting attended which is held independently of a board meeting. 39 42 EXECUTIVE COMPENSATION The following table sets forth the total compensation paid or accrued by the Company in 1996 for its Chief Executive Officer and the four other most highly compensated executive officers of the Company in 1996 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION NUMBER OF ---------------------------------- SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION --------------------------- -------- -------- ------------ ------------ ------------ Aleksander Szlam...................... $300,001 $154,502 $86,040(2) -- -- Chairman of the Board and Chief Executive Officer J. Neil Smith......................... 220,399 82,500 --(3) -- -- President and Chief Operating Officer Lee H. Davies......................... 127,211 13,320 --(3) -- -- Vice President -- Operations Dean A. Trumbull...................... 110,816 20,000 --(3) 40,000 -- Vice President -- Advanced Technology John M. Goodeve-Docker................ 85,333 32,000 18,576(4) -- $ 3,040(5) Managing Director of Melita Europe
- --------------- (1) Bonuses awarded and paid in 1996 were based upon 1995 performance. (2) Includes the value of the non-business use of two automobiles provided by the Company and reimbursement of the associated income taxes in the aggregate amount of $64,068, health and life insurance premiums and reimbursement of the associated income taxes in the aggregate amount of $13,623, auto insurance premiums and reimbursement of the associated income taxes in the aggregate amount of $6,308, and ad valorem tax payments and reimbursement of the associated income taxes in the aggregate amount of $2,041. (3) In accordance with the rules of the Securities and Exchange Commission (the "Commission"), other compensation in the form of perquisites and other personal benefits has been omitted because such perquisites and other personal benefits constituted less than the lesser of $50,000 or 10% of the total annual salary and bonus for the Named Executive Officer for such year. (4) Consists of the value of the non-business use of an automobile provided by the Company. (5) Consists of a retirement savings contribution of $3,040 paid by the Company. 40 43 The following table sets forth all individual grants of stock options during the year ended December 31, 1996, to each of the Named Executive Officers. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE -------------------------------------------------------- VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF STOCK SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(2) OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------- NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10% - ---- ---------- ---------------- ----------- ---------- --------- --------- Aleksander Szlam............. -- -- -- -- -- -- J. Neil Smith................ -- -- -- -- -- -- Lee H. Davies................ -- -- -- -- -- -- Dean A. Trumbull............. 40,000(1) 23.9% $4.07 1/1/03 $102,384 $259,461 John M. Goodeve-Docker....... -- -- -- -- -- --
- --------------- (1) This option was granted with an exercise price equal to the fair market value of the Common Stock on the date of grant as determined by the Board of Directors. The option is a nonqualified stock option, vests over five years and has a seven-year term. (2) The potential realizable value is calculated based on the seven-year term of the option at the time of its grant. It is calculated by assuming that the stock price on the date of grant ($4.07) appreciates at the indicated annual rate, compounded annually for the entire term of the option. The actual realizable value of the options based on the price to the public in the offering will substantially exceed the potential realizable value shown in the table. The following table summarizes the value of the outstanding options held by the Named Executive Officers at December 31, 1996. No options were exercised by the Named Executive Officers during the year ended December 31, 1996. YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS OPTIONS AT FISCAL AT FISCAL YEAR-END YEAR-END(1) ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Aleksander Szlam........................... -- -- -- -- J. Neil Smith.............................. -- 450,000 -- $1,165,500 Lee H. Davies.............................. -- -- -- -- Dean A. Trumbull........................... -- 40,000 -- 57,200 John M. Goodeve-Docker..................... -- -- -- --
- --------------- (1) Based on the estimated fair market value of the Company's Common Stock as of December 31, 1996, of $5.50 per share, less the exercise price payable upon exercise of such options. Such estimated fair market value as of December 31, 1996, is substantially lower than the initial public offering price per share in this offering. EMPLOYEE BENEFIT PLANS 1997 Stock Option Plan The Company's 1997 Stock Option Plan (the "1997 Stock Option Plan") became effective on February 6, 1997. The aggregate number of shares reserved for issuance under the 1997 Stock Option Plan is 1,350,000 shares, less the number of shares issued pursuant to the Company's 1992 Discounted Stock Option Plan. The purpose of the 1997 Stock Option Plan is to provide incentives for key employees, officers, consultants and directors to promote the success of the Company, and to enhance the Company's ability to attract and retain the services of such persons. Options granted under the 1997 Stock Option Plan may be 41 44 either options intended to qualify as "incentive stock options" under Section 422 of the Code or nonqualified stock options. As of February 28, 1997, options to purchase 125,000 shares of Common Stock were outstanding under the 1997 Stock Option Plan at a weighted average exercise price of $5.50 per share and no shares of Common Stock have been issued upon exercise of options granted under the 1997 Stock Option Plan. 1992 Discounted Stock Option Plan The Company's 1992 Discounted Stock Option Plan (the "1992 Stock Option Plan") became effective on June 4, 1992. The aggregate number of shares reserved for issuance under the 1992 Stock Option Plan is 1,000,000 shares. The purpose of the 1992 Stock Option Plan is to provide incentives for key employees to promote the success of the Company, and to enhance the Company's ability to attract and retain the services of such persons. Options granted under the 1992 Stock Option Plan are not intended to qualify as "incentive stock options" under Section 422 of the Code. Options granted under the 1992 Stock Option Plan vest over a period of time specified in the relevant option agreement, and will first become exercisable as to the vested portion 14 months after the closing of this offering. As of February 28, 1997, options to purchase 981,097 shares of Common Stock were outstanding under the 1992 Stock Option Plan at a weighted average exercise price of $3.16 per share and no shares of Common Stock have been issued upon exercise of options granted under the 1992 Stock Option Plan. Employee Stock Purchase Plan The Company adopted an Employee Stock Purchase Plan (the "Stock Purchase Plan") on March 1, 1997, to become effective on the closing of this offering. A total of 250,000 shares of the Company's Common Stock have been reserved for issuance under the Stock Purchase Plan. The Stock Purchase Plan is intended to qualify under sec. 423 of the Code. An employee electing to participate in the Stock Purchase Plan must authorize on a semi-annual basis a stated dollar amount or percentage of the employee's regular pay (not to exceed 10%) to be deducted by the Company from the employee's pay. The price at which employees may purchase Common Stock is 85% of the closing price of the Common Stock on the Nasdaq National Market on the first day of the semi-annual period or the last day of the semi-annual period, whichever is lower. An employee may not sell shares of Common Stock purchased under the Stock Purchase Plan until the later of: (i) 180 days after the closing of this offering; or (ii) the first day of the second semi-annual period following the semi-annual period in which the right to purchase such shares was granted. Employees of the Company who have completed six full months of service with the Company and whose customary employment is more than 20 hours per week for more than nine months per calendar year are eligible to participate in the Stock Purchase Plan. An employee may not be granted an option under the Stock Purchase Plan if after the granting of the option such employee would be deemed to own 5% or more of the combined voting power or value of all classes of stock of the Company. As of March 1, 1997, approximately 240 employees are eligible to participate in the Stock Purchase Plan. The Stock Purchase Plan will be administered by the Compensation Committee of the Board of Directors. 401(k) Profit Sharing Plan The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan") which is intended to be a tax-qualified defined contribution plan under Section 401(k) of the Code. In general, all U.S. employees of the Company who have completed six months of service are eligible to participate. The 401(k) Plan includes a salary deferral arrangement pursuant to which participants may contribute, subject to certain Code limitations, a maximum of 15% of their salary on a pre-tax basis, with a maximum deferral of $9,500. Subject to certain Code limitations, the Company may make a matching contribution at the discretion of the Board of Directors. In 1996, the Company's matching contribution was 40% of each participant's contribution up to 6% of the participant's salary, for an aggregate contribution of $119,000. A separate account is maintained for each participant in the 401(k) Plan. The portion of a participant's account attributable to his or her own contributions is 100% vested. The portion of the account attributable to Company contributions (including matching contributions) vests ratably over the next six years of service with the Company. Distributions from 42 45 the 401(k) Plan may be made in the form of a lump-sum payment in cash or property or in the form of an annuity. AGREEMENTS WITH EMPLOYEES Principal employees of the Company, including executive officers, are required to sign an agreement with the Company restricting the ability of the employee to compete with the Company during his or her employment and for a period of one year thereafter, restricting solicitation of customers and employees following employment with the Company, and providing for ownership and assignment of intellectual property rights to the Company. Mr. Szlam has entered into a two-year employment agreement with the Company which commences on the effective date of this offering. Pursuant to the agreement, Mr. Szlam is entitled to receive an annual base salary of $300,000, and is entitled to annual bonuses of at least $160,000. Mr. Szlam's employment under the agreement automatically renews for additional two-year terms unless the Company or Mr. Szlam cancels such renewal by giving three months' prior written notice. Under the terms of the agreement, Mr. Szlam has agreed to assign to the Company all patents, copyrights and other intellectual property developed by him during the course of his employment by the Company. In addition, Mr. Szlam has agreed not to solicit the customers or employees of the Company or to compete with the Company for two years following any termination of his employment. Mr. Smith has entered into an employment agreement with the Company which commences on the effective date of this offering and terminates on July 31, 1999. Pursuant to the agreement, Mr. Smith is entitled to receive an annual base salary of $225,000, and is entitled to annual bonuses of up to $100,000 at the discretion of the Board. Mr. Smith's employment under the agreement automatically renews for additional two-year terms unless the Company or Mr. Smith cancels such renewal by giving three months' prior written notice. If Mr. Smith's employment is terminated by the Company other than for cause, he will be entitled to severance pay equal to one year's salary. If Mr. Smith terminates his employment following a material diminishment of the duties, salary, location or authority of his position, he will be entitled, subject to Board of Directors review, to severance pay equal to one year of salary. All options currently held by Mr. Smith will vest upon completion of this offering, but will not be exercisable until beginning 14 months after completion of this offering. Notwithstanding the foregoing, if Mr. Smith voluntarily resigns his positions with the Company without the Company's consent, his right to exercise his current options will be forfeited with respect to one-fourth of his options for each full year which the resignation occurs prior to July 1, 2000. Under the terms of the agreement, Mr. Smith has agreed to assign to the Company all patents, copyrights and other intellectual property developed by him during the course of his employment by the Company. In addition, Mr. Smith has agreed not to solicit the customers or employees of the Company or to compete with the Company for two years following any termination of his employment. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1996, compensation of executive officers of the Company was determined by Mr. Szlam, Chairman of the Board and Chief Executive Officer of the Company. See "Certain Transactions" for information concerning certain transactions and relationships between the Company and Mr. Szlam. Simultaneously with the expansion of the Board of Directors following the completion of this offering, the Company will establish a Compensation Committee to review the performance of executive officers, establish overall employee compensation policies and recommend to the Board of Directors major compensation programs. No voting member of the Compensation Committee will be an executive officer of the Company. Messrs. Szlam and Smith will be ex officio members of the Compensation Committee. LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS Upon the closing of this offering, the Company's Amended and Restated Articles of Incorporation will provide that the liability of the directors for monetary damages shall be limited to the fullest extent permissible under Georgia law. Under Georgia law, liability of a director cannot be limited for (i) any 43 46 appropriation, in violation of his duties, of any business opportunity of the Company, (ii) acts or omissions which involve intentional misconduct or a knowing violation of law, (iii) any liability under Section 14-2-832 of the GBCC, which relates to unlawful payments of dividends and unlawful stock repurchases and redemptions, or (iv) any transaction from which he derived an improper personal benefit. This limitation of liability will not affect the availability of injunctive relief or other equitable remedies. Upon the closing of this offering, the Company's Amended and Restated Bylaws will provide that the Company shall indemnify each of its officers, directors, employees and agents to the extent that he is or was a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director, officer, employee or agent of the Company, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding; provided, however, that no indemnification shall be made for (i) any appropriation, in violation of his duties, of any business opportunity of the Company, (ii) acts or omissions which involve intentional misconduct or a knowing violation of law, (iii) any liability under Section 14-2-832 of the GBCC, which relates to unlawful payments of dividends and unlawful stock repurchases and redemptions, or (iv) any transaction from which he derived an improper personal benefit. The Company intends to provide directors and officers liability insurance coverage to its directors and officers following this offering. 44 47 PRINCIPAL SHAREHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of February 28, 1997, and as adjusted to reflect the sale by the Company of the shares offered hereby, by (i) each director of the Company; (ii) each of the Named Executive Officers; (iii) each shareholder known by the Company to be the beneficial owner of more than 5% of the Company's Common Stock; and (iv) all executive officers and directors as a group. Except as otherwise noted, the persons or entities named in the table have sole voting and investment power with respect to all the shares of Common Stock beneficially owned by them, subject to community property laws where applicable.
PERCENTAGE OF COMMON STOCK OUTSTANDING NUMBER OF SHARES -------------------- BENEFICIALLY BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING --------------------------------------- ---------------- -------- -------- Aleksander Szlam (2)...................................... 11,143,395 100.0% 76.1% J. Neil Smith (3)......................................... -- -- -- Lee H. Davies (4)......................................... 5,000 * * Dean A. Trumbull (5)...................................... -- -- -- John M. Goodeve-Docker (6)................................ 5,000 * * All executive officers and directors as a group (10 persons)(7)............................................. 11,163,395 100.0% 76.1%
- --------------- * Less than 1%. (1) Except as set forth herein, the street address of the named beneficial owner is c/o Melita International Corporation, 5051 Peachtree Corners Circle, Norcross, Georgia 30092-2500. (2) Consists of 11,143,395 shares held by a limited partnership controlled by Mr. Szlam. (3) Excludes 450,000 shares issuable pursuant to currently vested options exercisable beginning 14 months after the closing of this offering, subject to certain acceleration and defeasance provisions. See "Agreements with Employees." (4) Includes 5,000 shares issuable pursuant to currently exercisable options. (5) Excludes 10,000 shares issuable pursuant to currently vested options exercisable beginning 14 months after the closing of this offering. (6) Includes 5,000 shares issuable pursuant to currently exercisable options. (7) Includes 11,143,395 shares held by a limited partnership controlled by Mr. Szlam and 20,000 shares issuable pursuant to currently exercisable options. Excludes 460,000 shares issuable pursuant to currently vested options exercisable beginning 14 months after the closing of this offering. 45 48 CERTAIN TRANSACTIONS RELATED PARTY TRANSACTIONS In August 1994, the Company entered into a lease agreement with an unrelated party to lease its headquarters facility commencing April 1995. The agreement provides for annual lease payments ranging from $542,000 to $636,000 per year over a ten-year term. In November 1995, Mr. Szlam, the Company's Chairman of the Board, Chief Executive Officer and principal shareholder, purchased the facility through a limited liability company controlled by Mr. Szlam and his wife. The limited liability company now rents the facility to the Company under the terms of the original lease. Rent expense paid to the limited liability company was $60,000 and $543,000 in 1995 and 1996, respectively. During 1994, the Company paid $325,000 in research and development fees to an entity owned by Mr. Szlam's brother-in-law. The Board of Directors of the Company has adopted a resolution whereby all future transactions, including any loans from the Company to its officers, directors, principal shareholders or affiliates, will be approved by a majority of the Board of Directors, including a majority of the independent and disinterested members of the Board of Directors, if required by law, or a majority of the disinterested shareholders, and will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties. COMBINATION OF MELITA EUROPE AND INVENTIONS Upon the effective date of this offering, the Company will acquire Melita Europe and Inventions by share exchanges with their existing shareholders, which are Mr. Szlam, a limited partnership controlled by Mr. Szlam and a trust controlled by his spouse. The Company will issue a total of 3,143,395 shares of its Common Stock to the shareholders of Melita Europe and Inventions in such share exchanges. The exchange ratios and number of shares issued in the share exchanges were based on relative valuations of the Company, Melita Europe and Inventions determined by an independent appraisal firm. S CORPORATION DISTRIBUTION AND TERMINATION OF S CORPORATION STATUS Upon the Termination Date, the Company will terminate its status as an S corporation under the Code. All undistributed S corporation earnings through the Termination Date will be distributed to the Company's principal shareholder using a portion of the net proceeds of this offering. See "Termination of S Corporation Status and Related Distributions," "-- Repayment of Shareholder Notes" below and Notes 1 and 3 of the Notes to Combined Financial Statements. REPAYMENT OF SHAREHOLDER NOTES In connection with a June 19, 1992 distribution of S corporation accumulated earnings, Melita issued a note payable (the "1992 Note") to Mr. Szlam in the principal amount of $3.0 million. The note bears interest at a rate equal to the prime rate plus 1% per annum, and the outstanding principal balance of this note as of March 1, 1997, was $2.4 million. Interest on the note is payable monthly, and principal is payable in 16 equal quarterly installments beginning July 1, 1996. The note contains an acceleration provision at the option of the shareholder upon certain designated changes in ownership, which was triggered by changes in the capital structure in February 1997. The largest amount outstanding under this note during 1996 was $3.0 million. In connection with a February 7, 1997 distribution of S corporation earnings accumulated through December 31, 1996, Melita and Inventions issued notes payable (the "1997 Notes") to Mr. Szlam. These two notes have an aggregate principal amount of $12.9 million. Each of the notes bears interest at the minimum rate required to avoid imputation of interest using the applicable federal rate under the Code. The outstanding principal balance on these notes as of March 1, 1997, was $12.9 million, and the largest aggregate amount outstanding under these notes during the period from issuance to March 1, 1997 was $13.1 million. Payment of these notes is due in full upon demand. The 1992 Note and 1997 Notes will be repaid in full with a portion of the net proceeds of this offering. 46 49 TAX INDEMNIFICATION AGREEMENT Melita and Inventions have entered into Tax Indemnification Agreements with their existing shareholders prior to this offering providing for, among other things, the indemnification of the Company by such shareholders for any federal and state income taxes (including interest) incurred by the Company if for any reason the Company is deemed to be treated as a C corporation during any period for which it reported its earnings to the taxing authorities as an S corporation. The Tax Indemnification Agreements further provide for the cross-indemnification of the Company and of each existing shareholder for certain additional taxes (including interest and, in the case of existing shareholders, penalties) resulting from the Company's operations during the period in which it was an S corporation. 47 50 DESCRIPTION OF CAPITAL STOCK Upon the effectiveness of this offering, the Company's authorized capital stock will consist of 100,000,000 shares of Common Stock, no par value per share, and 20,000,000 shares of preferred stock, no par value per share. As of March 1, 1997, after giving effect to the issuance of 3,143,395 shares of Common Stock in connection with the Combination, the Company had issued and outstanding 11,143,395 shares of Common Stock held by three stockholders of record. The following description of the capital stock of the Company is a summary and is qualified in its entirety by the provisions of the Company's Amended and Restated Articles of Incorporation and Amended and Restated Bylaws, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. COMMON STOCK Holders of shares of Common Stock are entitled to one vote per share for the election of directors and on all matters to be submitted to a vote of the Company's shareholders. The Common Stock does not have cumulative voting rights, and, as a result, the holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election and the holders of the remaining shares will not be able to elect any directors. Subject to the rights of any holders of preferred stock which may be issued in the future, the holders of shares of Common Stock are entitled to share ratably in such dividends as may be declared by the Board of Directors and paid by the Company out of funds legally available therefor. In the event of dissolution, liquidation or winding up of the Company, holders of shares of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities and liquidation preferences, if any. Holders of shares of Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares of Common Stock to be issued by the Company in connection with this offering will be, duly authorized, validly issued, fully paid and nonassessable. The rights of holders of Common Stock will be subject to, and may be adversely affected by, the rights, privileges and preferences of the holders of any shares of preferred stock that the Company may designate and issue in the future. PREFERRED STOCK The Board of Directors is authorized, subject to certain limitations prescribed by law, without further shareholder approval, to issue from time to time up to an aggregate of 20,000,000 shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions on the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of the Company. There are no outstanding shares of preferred stock, and no series have been designated. The Company does not currently have any intention to designate or issue any preferred stock. CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS The Amended and Restated Bylaws provide that special meetings of shareholders may be called only by (i) the Board of Directors, (ii) the Chairman of the Board of Directors (if one is so appointed), (iii) the President of the Company or (iv) holders of not less than 50% of all votes entitled to be cast on any issue proposed to be considered at the proposed special meeting. The Amended and Restated Bylaws permit removal of directors only for cause. The Amended and Restated Articles of Incorporation also provide for a classified Board of Directors. See "Management -- Directors and Executive Officers." The Company's Amended and Restated Bylaws establish an advance notice procedure for the nomination of candidates for election as directors and other shareholder proposals to be considered at shareholders meetings, other than by or at the direction of the Board of Directors or other designated parties. Notice of shareholder proposals and director nominations must be given timely in writing to the Secretary of the Company before the meeting at which such matters are to be acted upon or directors are to be elected. Such 48 51 notice, to be timely, must be received at the principal executive offices of the Company not less than 60 days before the date of the meeting at which the director(s) are to be elected or the proposal is to be considered; however, if less than 70 days notice or prior public disclosure of the date of the scheduled meeting is given or made, notice by the shareholder, to be timely, must be delivered or received not later than the close of business on the tenth day following the earlier of the day on which notice of the date of the meeting is mailed to shareholders or public disclosure of the date of such meeting is made. Notice to the Company from a shareholder who intends to present a proposal or to nominate a person for election as a director at a shareholders' meeting must contain certain information about the shareholder giving such notice and, in the case of director nominations, all information that would be required to be included in a proxy statement soliciting proxies for the election of the proposed nominee (including such person's written consent to serve as a director if so elected). If the chairman of the meeting determines that a shareholder's proposal or nomination is not made in accordance with the procedures set forth in the Amended and Restated Bylaws, such proposal or nomination, at the direction of such presiding officer, may be disregarded. The notice requirement for shareholder proposals contained in the Amended and Restated Bylaws does not restrict a shareholder's right to include proposals in the Company's annual proxy materials pursuant to rules promulgated under the Securities Exchange Act of 1934, as amended. The Amended and Restated Bylaws provide that directors may be removed only for cause and only by the affirmative vote, at any annual or special meeting of the shareholders, of not less than 66 2/3% of the total number of votes of then outstanding shares of capital stock of the Company that are entitled to vote generally in the election of directors, voting together as a single class, but only if notice of such proposed removal was contained in the notice of such meeting. "For cause" means (i) misconduct as a director of the Company or any subsidiary of the Company which involves dishonesty with respect to a material corporate activity or material corporate assets, or (ii) conviction of an offense punishable by one or more years of imprisonment (other than minor regulatory infractions and traffic violations which do not materially and adversely affect the Company). The Board of Directors shall have the power to increase or decrease the authorized number of directors, with or without shareholder approval. Newly created directorships resulting from any increase in the number of directors or any vacancy on the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors then in office or, if not filled by the directors, by the shareholders. In discharging the duties of their respective positions and in determining what is believed to be in the best interest of the Company, the Board of Directors, and individual directors, in addition to considering the effects of any action on the Company or is shareholders, may, to the extent permitted by applicable Georgia law, consider the interests of the employees, customers, suppliers and creditors of the Company and its subsidiaries, the communities in which offices or other establishments of the Company and its subsidiaries are located, and all other factors such directors may consider pertinent; provided, however, that this provision of the Company's Amended and Restated Articles of Incorporation solely grants discretionary authority to the directors and no constituency shall be deemed to have been given any right to consideration thereby. The preceding provisions of the Amended and Restated Articles of Incorporation and Bylaws may be changed only upon the affirmative vote of holders of at least a 66 2/3% of the outstanding shares of Common Stock. The provisions of the Amended and Restated Articles of Incorporation and Bylaws summarized in the preceding five paragraphs and the provisions of the GBCC described under "Certain Provisions of Georgia Law," contain provisions that may have the effect of delaying, deferring or preventing a non-negotiated merger or other business combination involving the Company. These provisions are intended to encourage any person interested in acquiring the Company to negotiate with and obtain the approval of the Board of Directors in connection with the transaction. Certain of these provisions may, however, discourage a future acquisition of the Company not approved by the Board of Directors in which shareholders might receive an attractive value for their shares or that a substantial number or even a majority of the Company's shareholders might believe to be in their best interest. As a result, shareholders who desire to participate in such a transaction may not have the opportunity to do so. Such provisions could also discourage bids for the Common Stock at a premium to the prevailing market price, as well as create a depressive effect on the market price of the Common Stock. 49 52 CERTAIN PROVISIONS OF GEORGIA LAW Georgia Business Combination Statute. The Company has elected in its Bylaws to be subject to provisions of the GBCC prohibiting various "business combinations" involving "interested shareholders" for a period of five years after the shareholder becomes an interested shareholder of the Company. Such provisions prohibit any business combination with an interested shareholder unless either (i) prior to such time, the Board of Directors approves either the business combination or the transaction by which such shareholder became an interested shareholder, (ii) in the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder became the beneficial owner of at least 90% of the outstanding voting stock of the Company which was not held by directors, officers, affiliates thereof, subsidiaries or certain employee stock option plans of the Company, or (iii) subsequent to becoming an interested shareholder, such shareholder acquired additional shares resulting in such shareholder owning at least 90% of the outstanding voting stock of the Company and the business combination is approved by a majority of the disinterested shareholders' shares not held by directors, officers, affiliates thereof, subsidiaries or certain employee stock option plans of the Company. Under the relevant provisions of the GBCC, a "business combination" is defined to include, among other things, (i) any merger, consolidation, share exchange or any sale, transfer or other disposition (or series of related sales or transfers) of assets of the Company having an aggregate book value of 10% or more of the Company's net assets (measured as of the end of the most recent fiscal quarter), with an interested shareholder of the Company or any other corporation which is or, after giving effect to such business combination, becomes an affiliate of any such interested shareholder, (ii) the liquidation or dissolution of the Company, (iii) the receipt by an interested shareholder of any benefit from any loan, advance, guarantee, pledge, tax credit or other financial benefit from the Company, other than in the ordinary course of business and (iv) certain other transactions involving the issuance or reclassification of securities of the Company which produce the result that 5% or more of the total equity shares of the Company, or of any class or series thereof, is owned by an interested shareholder. An "interested shareholder" is defined by the GBCC to include any person or entity that, together with its affiliates, beneficially owns or has the right to own 10% or more of the outstanding voting shares of the Company, or any person that is an affiliate of the Company and has, at any time within the preceding two-year period, been the beneficial owner of 10% or more of the outstanding voting shares of the Company. The restrictions on business combinations shall not apply to any person who was an interested shareholder before the adoption of the Bylaw which made the provisions applicable to the Company nor to any persons who subsequently become interested shareholders inadvertently, subsequently divest sufficient shares so that the shareholder ceases to be an interested shareholder and would not, at any time within the five-year period immediately before a business combination involving the shareholder, have been an interested shareholder but for the inadvertent acquisition. Georgia Fair Price Statute. The Company has elected in its Bylaws to be subject to the "Fair Price" provisions of the GBCC. These provisions require that a "business combination" with an "interested shareholder" be (a) unanimously approved by "continuing directors" who must constitute at least three members of the board of directors at the time of such approval, or (b) recommended by at least two-thirds of the "continuing directors" and approved by a majority of the shareholders excluding the "interested shareholder," unless certain standards regarding the consideration paid to shareholders in the transaction are met. Subject to certain exceptions, a "business combination" includes (i) any merger or consolidation of the corporation or a subsidiary of the Company; (ii) any share exchange; (iii) any sale, lease, transfer, or other disposition of assets of the Company or its subsidiary occurring within a 12 month period and having an aggregate book value equal to 10% or more of the net assets of the Company; (iv) any transaction that results in the issuance or transfer by the Company of any stock of the Company or the subsidiary representing 5% or more of the total market value of the outstanding stock of the Company to any interested shareholder within a 12 month period, except pursuant to a transaction that effects a pro rata distribution to all shareholders of the Company; (v) the adoption of any plan or proposal for the liquidation or dissolution of the corporation in which anything other than cash will be received by an interested shareholder; and (vi)any transaction occurring within a 12 month period involving the Company or a subsidiary of the Company that has the effect of increasing by 5% or more the proportionate share of the stock of any class or series of the Company or the subsidiary that is directly or beneficially owned by the interested shareholder. An "interested shareholder" is 50 53 defined the same as it is defined in the Georgia Business Combination Statute. A "continuing director" includes any director who is not an affiliate or associate of an interested shareholder or any board approved successor of such a director who is not an affiliate or associate of an interested shareholder. The Fair Price provisions do not restrict a business combination if: (a) the aggregate amount of the cash, and fair market value of any non-cash property, measured five days before the consummation date, to be received per share by the shareholders is at least equal to the highest of: (i) the highest per share price, including brokerage commissions, transfer taxes, and soliciting dealers' fees, paid by the interested shareholder for any shares of the same class or series acquired by it within two years preceding the announcement date or in the transaction in which it became an interested shareholder; (ii) the higher of the fair market value per share as determined on the announcement date or the determination date; or (iii) in the case of shares other than common shares, the highest amount per share to which preferred shareholders are entitled in the event of liquidation, dissolution, or winding up of the corporation, provided that subparagraph (iii) shall only be applicable if the interested shareholder acquired the shares within the two year period immediately preceding the announcement date; and (b) shareholders receive cash or the form of consideration used in the past by the interested shareholder to purchase the largest number of shares of such class or series. Further, subject to exceptions, prior to the time the business combination with the interested shareholder takes place, without the approval of the board of directors, there must have been: (i) no failure to declare and pay full dividends on the Company's outstanding preferred shares; (ii) no reduction in the annual rate of dividends paid on common shares except as to reflect any subdivision of the shares; (iii) an increase in the annual rate of dividends to reflect any reclassification of shares; and (iv) not more than a 1% increase in the interested shareholder's ownership of any of the Company's stock in any 12 month period. An interested shareholder may not receive a direct or indirect benefit, except proportionately as a shareholder, of any loans, advances, guarantees, pledges, or other financial assistance or any tax credits or other tax advantages provided by the corporation or its subsidiaries, either in anticipation of or in connection with such business combination or otherwise. LISTING Application has been made to include the Company's Common Stock on the Nasdaq National Market under the trading symbol "MELI." TRANSFER AGENT AND REGISTRAR The transfer agent for the Company's Common Stock is . 51 54 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the securities of the Company. Upon completion of this offering, the Company will have outstanding 14,643,395 shares of Common Stock (assuming no exercise of the underwriters' over-allotment option or options outstanding under the Company's stock option plans). Of these shares, the 3,500,000 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act (which sales would be subject to certain limitations and restrictions described below). The remaining 11,143,395 shares of Common Stock may be sold in the public market beginning in February 1998, subject to the volume and other limitations of Rule 144 promulgated under the Securities Act. The holders of all of these remaining shares have executed 180-day lock-up agreements with Montgomery Securities. See "Underwriting." In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are aggregated) who has beneficially owned shares for a least one year (including the holding period of any prior owner except an affiliate) is entitled to sell in "brokers' transactions" or to market makers, within any three-month period a number of shares that does not exceed the greater of (i) one percent of the number of shares of Common Stock then outstanding (approximately 146,500 shares immediately after this offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding the required filing of a Form 144 with respect to such sale. Sales under Rule 144 are subject to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice filing provisions of Rule 144. Under Rule 701 under the Securities Act, persons who purchase shares upon exercise of options granted prior to this offering are entitled to sell such shares 90 days after this offering in reliance on Rule 144, without having to comply with the holding period requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the volume limitation or notice filing provisions of Rule 144. After the completion of this offering, the Company intends to file one or more Registration Statements on Form S-8 under the Securities Act to register an aggregate of 1,600,000 shares of Common Stock reserved for issuance under the 1992 Stock Option Plan, the 1997 Stock Option Plan and the Stock Purchase Plan. After the date of such filing, if not otherwise subject to a lock-up agreement, shares purchased pursuant to these plans generally would be available for resale in the public market. The Company has granted options under such plans to purchase an aggregate of 1,106,097 shares of which options to purchase an aggregate of 20,000 shares are currently exercisable. See "Management -- Employee Benefit Plans." 52 55 UNDERWRITING The underwriters named below, represented by Montgomery Securities (the "Representative"), have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock indicated below opposite their respective names at the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters are committed to purchase all of the shares, if any are purchased.
NUMBER OF UNDERWRITER SHARES ----------- --------- Montgomery Securities....................................... --------- Total............................................. 3,500,000 =========
The Representative has advised the Company that the Underwriters propose initially to offer the Common Stock to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow to selected dealers a concession of not more than $ per share; and the Underwriters may allow, and such dealers may reallow, a concession of not more than $ per share to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the Representative. The Common Stock is offered subject to receipt and acceptance by the Underwriters and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of 525,000 additional shares of Common Stock to cover over-allotments, if any, at the same price per share as the initial shares to be purchased by the Underwriters. To the extent the Underwriters exercise this option, each of the Underwriters will be committed, subject to certain conditions, to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over-allotments made in connection with this offering. The holders of all of the Company's Common Stock, who immediately following the offering (assuming no exercise of the over-allotment option) collectively will beneficially own 11,143,395 shares of Common Stock, and each of the Company's officers and directors, have agreed that for a period of 180 days after the date of this Prospectus they will not, without the prior written consent of Montgomery Securities, directly or indirectly, sell, offer, contract or grant an option to sell, pledge, transfer, except with respect to certain transfers to family members or trusts for the benefit of family members, establish an open put equivalent position or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities convertible into or exchangeable or exercisable for shares of Common Stock, or publicly announce the intention to do any of the foregoing. In addition, the Company has agreed that for a period of 180 days after the date of this Prospectus it will not, without the consent of Montgomery Securities, directly or indirectly, sell, offer, contract or grant an option to sell, pledge, transfer or otherwise dispose of, or announce the offering of, or file any registration statement under the Securities Act in respect of, any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities convertible into or exchangeable or exercisable for shares of Common Stock, or publicly announce the intention to do any of the 53 56 foregoing, except for shares of Common Stock offered hereby and shares issued pursuant to the 1992 Stock Option Plan, the 1997 Stock Option Plan or the Stock Purchase Plan. See "Management -- Employee Benefit Plans" and "Shares Eligible for Future Sale." The Underwriting Agreement provides that the Company will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. Certain persons participating in this offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, which may involve the purchase of Common Stock of the Company on the Nasdaq National Market or otherwise. Such transactions may stabilize or maintain the market price of the Common Stock at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time. The Representative has advised the Company that the Underwriters do not expect to make sales of Common Stock offered by this Prospectus to accounts over which they exercise discretionary authority in excess of 5% of this offering. Prior to this offering, there has been no public market for the Common Stock. Consequently, the initial offering price will be determined through negotiations between the Company and the Representative. Among the factors to be considered in such negotiations will be the history of and prospects for the Company and the industry in which the Company competes, an assessment of the Company's management, the Company's past and present operations and financial performance, its past and present earnings and the trend of such earnings, the prospects for future earnings of the Company, the present state of the Company's development, the general condition of the securities markets at the time of the offering and the market prices of publicly traded common stocks of comparable companies in recent periods. LEGAL MATTERS The validity of the issuance of the shares of the Common Stock offered hereby will be passed upon for the Company by Morris, Manning & Martin, L.L.P., Atlanta, Georgia. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Hale and Dorr LLP, Washington, D.C. EXPERTS The combined financial statements included in this prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their reports. In those reports, that firm states that with respect to Melita Europe its opinion is based on the reports of other independent public accountants, namely BDO Stoy Hayward. The financial statements referred to above have been included herein in reliance upon the authority of those firms as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (together with all amendments, schedules and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement and the exhibits and schedules thereto may be inspected without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and 54 57 at the following regional offices of the Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at prescribed rates. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commissions Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The Commission maintains a World Wide Web Site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Company intends to furnish to its shareholders annual reports containing consolidated financial statements audited by an independent public accounting firm and quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information. 55 58 MELITA INTERNATIONAL CORPORATION MELITA EUROPE LIMITED AND INVENTIONS, INC. INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE ---- COMBINED FINANCIAL STATEMENTS: Report of Independent Public Accountants -- Arthur Andersen LLP....................................................... F-2 Report of the Auditors -- BDO Stoy Hayward.................. F-3 Combined Balance Sheets as of December 31, 1995 and 1996.... F-4 Combined Statements of Operations for the three years in the period ended December 31, 1996............................ F-5 Combined Statements of Shareholders' Equity for the three years in the period ended December 31, 1996............... F-6 Combined Statements of Cash Flows for the three years in the period ended December 31, 1996............................ F-7 Notes to Combined Financial Statements...................... F-8
F-1 59 After the stock recapitalization transaction discussed in Note 9 to the combined financial statements of Melita International Corporation, Melita Europe Limited and Inventions, Inc. is effected, we expect to be in a position to render the following audit report. ARTHUR ANDERSEN LLP February 28, 1997 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Melita International Corporation, Melita Europe Limited and Inventions, Inc.: We have audited the accompanying combined balance sheets of MELITA INTERNATIONAL CORPORATION (a Georgia corporation), MELITA EUROPE LIMITED (a private limited company organized in the United Kingdom) and INVENTIONS, INC. (a Georgia corporation) (collectively the "Company") as of December 31, 1995 and 1996 and the related combined statements of operations, shareholders' equity, and cash flows for the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Melita Europe Limited, which statements reflect total assets of 8% and 12% at December 31, 1995 and 1996, respectively, and total revenues of 5%, 9%, and 9% of the combined totals for the three years in the period ended December 31, 1996, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the entity, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the combined financial position of Melita International Corporation, Melita Europe Limited and Inventions, Inc. as of December 31, 1995 and 1996 and the combined results of their operations and their cash flows for the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Atlanta, Georgia F-2 60 MELITA EUROPE LIMITED REPORT OF THE AUDITORS To the shareholders of Melita Europe Limited: We have audited the financial statements of Melita Europe Limited for the three years ended 31 December 1996. Respective responsibilities of directors and auditors The Company's directors are responsible for the preparation of the financial statements. It is our responsibility to form an independent opinion, based on our audits, on those statements and to report our opinion to you. Basis of opinion We conducted our audits in accordance with Auditing Standards issued by the Auditing Practices Board. The results of the audits would not have been materially different had the audits been conducted in accordance with Generally Accepted Auditing Standards in the United States. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audits so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements and including those for the years ended 31 December 1994 and 1995 as previously audited by us, give a true and fair view of the state of the Company's affairs as at 31 December 1996 and of its profit for the three years ended 31 December 1996 and have been properly prepared in accordance with the Companies Act 1985. BDO Stoy Hayward Chartered Accountants and Registered Auditors Ewell, Epsom, Surrey 28 February 1997 F-3 61 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. COMBINED BALANCE SHEETS DECEMBER 31, 1995 AND 1996
PRO FORMA DECEMBER 31, 1995 1996 1996 (NOTE 8) ------- ------- -------------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 5,959 $ 9,849 $ 0 Accounts receivable, net of allowance for doubtful accounts of $331 and $487 in 1995 and 1996, respectively............................................ 9,203 11,860 11,860 Inventories............................................... 3,027 2,442 2,442 Deferred taxes............................................ 0 0 1,061 Prepaid expenses and other................................ 342 170 170 ------- ------- ------- Total current assets............................... 18,531 24,321 15,533 ------- ------- ------- Property and equipment, at cost: Furniture and fixtures.................................... 1,341 1,361 1,361 Equipment................................................. 4,255 5,476 5,476 Leasehold improvements.................................... 166 343 343 ------- ------- ------- Total property and equipment....................... 5,762 7,180 7,180 Less accumulated depreciation and amortization............ 3,423 4,456 4,456 ------- ------- ------- Net property and equipment......................... 2,339 2,724 2,724 ------- ------- ------- Other assets................................................ 58 24 24 ------- ------- ------- $20,928 $27,069 $18,281 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft............................................ $ 0 $ 0 $ 7,176 Accounts payable.......................................... 2,763 2,429 2,429 Accrued liabilities....................................... 3,416 4,210 4,398 Deferred revenue.......................................... 2,593 3,065 3,065 Customer deposits......................................... 2,432 3,849 3,849 Current maturities of note payable to shareholder (Note 2)...................................................... 375 2,625 0 Current maturities of capital lease obligations (Note 5)...................................................... 48 19 19 ------- ------- ------- Total current liabilities.......................... 11,627 16,197 20,936 ------- ------- ------- Note payable to shareholder, net of current maturities (Note 2)........................................................ 2,625 0 0 ------- ------- ------- Capital lease obligations, net of current maturities (Note 5)........................................................ 19 0 0 ------- ------- ------- Commitments and contingencies (Note 5) Shareholders' equity: Preferred stock: Melita International Corporation, no par value; 20,000,000 shares authorized, no shares issued and outstanding in 1995, 1996 and 1996 pro forma.......... 0 0 0 Common stock: Melita International Corporation, no par value; 100,000,000 shares authorized, 8,000,000 shares issued and outstanding in 1995 and 1996, and 11,143,395 shares issued and outstanding 1996 pro forma.......... 2 2 69 Melita Europe Limited, L1 par value; 50,000 shares authorized, 31,328 shares issued and outstanding in 1995 and 1996, no shares issued and outstanding pro forma................................................. 46 46 0 Inventions, Inc., $5 par value; 100 shares authorized, 100 shares issued and outstanding in 1995 and 1996, no shares issued and outstanding pro forma............... 1 1 0 Additional paid-in capital................................ 20 20 0 Cumulative foreign currency translation adjustment........ 5 35 35 Retained earnings (deficit)............................... 6,583 10,768 (2,759) ------- ------- ------- Total shareholders' equity (deficit)............... 6,657 10,872 (2,655) ------- ------- ------- $20,928 $27,069 $18,281 ======= ======= =======
The accompanying notes are an integral part of these combined balance sheets. F-4 62 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. COMBINED STATEMENTS OF OPERATIONS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
1994 1995 1996 ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues: Product................................................... $18,186 $24,620 $32,077 Service................................................... 8,970 10,662 15,463 ------- ------- ------- Total revenues.................................... 27,156 35,282 47,540 ------- ------- ------- Cost of revenues: Product................................................... 6,310 8,730 11,494 Service................................................... 3,254 5,282 6,863 ------- ------- ------- Total cost of revenues............................ 9,564 14,012 18,357 ------- ------- ------- Gross margin................................................ 17,592 21,270 29,183 ------- ------- ------- Operating expenses: Research and development.................................. 3,660 4,050 5,070 Selling, general, and administrative...................... 11,332 12,559 16,765 ------- ------- ------- Total operating expenses.......................... 14,992 16,609 21,835 ------- ------- ------- Income from operations...................................... 2,600 4,661 7,348 Other income (expense), net................................. 46 88 261 ------- ------- ------- Income before income taxes.................................. 2,646 4,749 7,609 Income tax benefit.......................................... 26 0 0 ------- ------- ------- Net income before pro forma income taxes.................... 2,672 4,749 7,609 Pro forma income taxes...................................... 1,164 1,794 2,827 ------- ------- ------- Pro forma net income........................................ $ 1,508 $ 2,955 $ 4,782 ======= ======= ======= Pro forma net income per common and common equivalent share..................................................... $ 0.42 ======= Pro forma weighted average common and common equivalent shares outstanding........................................ 11,395 =======
The accompanying notes are an integral part of these combined statements. F-5 63 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
COMMON STOCK -------------------------------------------------------- MELITA CUMULATIVE INTERNATIONAL MELITA EUROPE FOREIGN PREFERRED STOCK CORPORATION LIMITED INVENTIONS, INC. ADDITIONAL CURRENCY --------------- ------------------ --------------- ----------------- PAID-IN TRANSLATION SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT ------ ------ --------- ------ ------ ------ ------- ------- ---------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance, December 31, 1993.................. 0 $0 8,000,000 $2 31,328 $46 100 $1 $20 $ 8 Net income before pro forma income taxes............... 0 0 0 0 0 0 0 0 0 0 Distributions to shareholders........ 0 0 0 0 0 0 0 0 0 0 Foreign currency translation adjustment.......... 0 0 0 0 0 0 0 0 0 (3) -- -- --------- -- ------ --- --- -- --- --- Balance, December 31, 1994.................. 0 0 8,000,000 2 31,328 46 100 1 20 5 Net income before pro forma income taxes............... 0 0 0 0 0 0 0 0 0 0 Distributions to shareholders........ 0 0 0 0 0 0 0 0 0 0 Foreign currency translation adjustment.......... 0 0 0 0 0 0 0 0 0 0 -- -- --------- -- ------ --- --- -- --- --- Balance, December 31, 1995.................. 0 0 8,000,000 2 31,328 46 100 1 20 5 Net income before pro forma income taxes............... 0 0 0 0 0 0 0 0 0 0 Distributions to shareholders........ 0 0 0 0 0 0 0 0 0 0 Foreign currency translation adjustment.......... 0 0 0 0 0 0 0 0 0 30 -- -- --------- -- ------ --- --- -- --- --- Balance, December 31, 1996.................. 0 $0 8,000,000 $2 31,328 $46 100 $1 $20 $35 == == ========= == ====== === === == === === RETAINED EARNINGS TOTAL --------- ------- Balance, December 31, 1993.................. $ 7,282 $ 7,359 Net income before pro forma income taxes............... 2,672 2,672 Distributions to shareholders........ (2,924) (2,924) Foreign currency translation adjustment.......... 0 (3) ------- ------- Balance, December 31, 1994.................. 7,030 7,104 Net income before pro forma income taxes............... 4,749 4,749 Distributions to shareholders........ (5,196) (5,196) Foreign currency translation adjustment.......... 0 0 ------- ------- Balance, December 31, 1995.................. 6,583 6,657 Net income before pro forma income taxes............... 7,609 7,609 Distributions to shareholders........ (3,424) (3,424) Foreign currency translation adjustment.......... 0 30 ------- ------- Balance, December 31, 1996.................. $10,768 $10,872 ======= =======
The accompanying notes are an integral part of these combined statements. F-6 64 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. COMBINED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
1994 1995 1996 ------- ------- ------- (IN THOUSANDS) Cash flows from operating activities: Pro forma net income...................................... $ 1,508 $ 2,955 $ 4,782 ------- ------- ------- Adjustments to reconcile pro forma net income to net cash provided by operating activities: Pro forma income taxes................................. 1,164 1,794 2,827 Depreciation and amortization.......................... 768 997 1,141 (Gain) loss on sale of property and equipment.......... 0 (51) 6 Changes in assets and liabilities: Accounts receivable.................................. 130 (1,095) (2,657) Inventories.......................................... (355) (990) 585 Prepaid expenses and other assets.................... (405) 165 172 Accounts payable..................................... 154 1,595 (334) Accrued liabilities.................................. 178 161 794 Deferred revenue..................................... 996 607 472 Customer deposits.................................... 975 1,416 1,417 Other, net........................................... (51) (18) 63 ------- ------- ------- Total adjustments................................. 3,554 4,581 4,486 ------- ------- ------- Net cash provided by operating activities......... 5,062 7,536 9,268 ------- ------- ------- Cash flows from investing activities: Purchases of property and equipment....................... (783) (1,879) (1,531) Proceeds from sale of property and equipment.............. 0 132 0 ------- ------- ------- Net cash used in investing activities............. (783) (1,747) (1,531) ------- ------- ------- Cash flows from financing activities: Repayment of capital lease obligations.................... (65) (40) (48) Repayment of note payable to shareholder.................. 0 0 (375) Distributions to shareholders............................. (2,924) (5,196) (3,424) ------- ------- ------- Net cash used in financing activities............. (2,989) (5,236) (3,847) ------- ------- ------- Net change in cash and cash equivalents..................... 1,290 553 3,890 Cash and cash equivalents, beginning of year................ 4,116 5,406 5,959 ------- ------- ------- Cash and cash equivalents, end of year...................... $ 5,406 $ 5,959 $ 9,849 ======= ======= ======= Cash paid for interest during the year...................... $ 265 $ 302 $ 279 ======= ======= ======= Income taxes paid........................................... $ 0 $ 29 $ 0 ======= ======= =======
The accompanying notes are an integral part of these combined statements. F-7 65 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1995 AND 1996 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Melita International Corporation ("Melita"), Melita Europe Limited ("Melita Europe"), and Inventions, Inc. ("Inventions") (collectively, the "Company") are effectively owned and controlled by related individuals. The Company is a provider of integrated call management systems that enable customers to operate efficient call centers. The Company's principal product, PhoneFrame CS, is an integrated system comprised of both hardware and software. Melita offers periodic ongoing maintenance support of its products. The Company also offers fee-based installation, training and consulting services. The Company markets its products worldwide through direct sales forces and through distributors in Europe, Latin America and Asia (Note 7). The Company is planning an initial public offering (the "Offering") of its common stock. In connection with the planned Offering, the Company will convert from an S corporation to a C corporation and Melita Europe and Inventions will be combined into Melita (Note 8). BASIS OF COMBINATION The policy of the Company is to present combined financial statements including the accounts of Melita, Melita Europe and Inventions, since all are under common control. All significant intercompany accounts and transactions have been eliminated in combination. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash or cash equivalents. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes raw materials, labor and overhead. Market is defined as replacement cost for work in progress and purchased parts and net realizable value for finished goods. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and are depreciated primarily using an accelerated depreciation method over the following estimated useful lives: Furniture and fixtures Five to seven years Equipment Three to five years Leasehold improvements Remaining life of lease
INCOME TAXES Melita and Inventions are organized as S corporations under the Internal Revenue Code and, therefore, are not subject to federal income taxes. The income or loss of Melita and Inventions is included in the shareholders' individual federal and state tax returns, and as such, no provision for income taxes is recorded in the accompanying combined statements of operations. The Company has historically made distributions to cover the shareholders' anticipated tax liability. The accompanying combined financial statements reflect a provision for income taxes on a pro forma basis as if the Company were liable for federal and state income taxes as a taxable corporate entity throughout F-8 66 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) the years presented. The pro forma income tax provision has been computed by applying the Company's anticipated statutory tax rate to pretax income, adjusted for permanent tax differences (Note 3). FOREIGN CURRENCY TRANSLATION The financial statements of Melita Europe are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Net assets of Melita Europe are translated at the current rates of exchange. Income and expense items are translated at the average exchange rate for the year. The resulting translation adjustments are recorded in shareholders' equity. The Company has recognized foreign exchange gains (losses) of approximately $31,000, $(2,000) and $162,000 in 1994, 1995 and 1996, respectively. REVENUE RECOGNITION The Company generates product revenues primarily from its principal product, PhoneFrame CS, an integrated system comprised of both hardware and software. The Company's service revenues are generated from maintenance contracts which include support, parts and labor and software update rights. Service revenues also include fee-based installation, training and consulting services. The Company recognizes product revenues upon shipment of the product and when the Company has no significant obligations yet to be satisfied. The Company's sales contracts provide for certain payment terms normally based upon signing the contract, customer receipt of the product, and commencement of operation of the customer's system. Revenues from maintenance contracts are recognized ratably over the term of the contractual support period which ranges up to 5 years. If maintenance is included in the original integrated product contract, such amounts are unbundled from the license fee based on the value established by independent sale of such maintenance to customers. Consulting revenues are primarily related to implementation services performed under separate service arrangements related to the installation of the Company's hardware and software products. Revenues from consulting, installation and training services are recognized as the services are performed. Deferred revenues primarily relate to products that have not yet been delivered and maintenance services which have been paid by the customers prior to the performance of those services. Deferred revenue amounted to $2,593,000 and $3,065,000 at December 31, 1995 and 1996, respectively. CAPITALIZED SOFTWARE DEVELOPMENT COSTS Research and development expenditures are charged to expense as incurred. The system software delivers the functionality and controls the hardware components. Computer software development costs of the system software products are charged to research and development expense until technological feasibility is established, after which remaining software production costs are capitalized in accordance with SFAS No. 86, "Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." The Company has defined technological feasibility of its products as the point in time at which the Company has a working model of the related product, which is when the product has achieved "beta" status. Historically, the development costs incurred during the period between the achievement of beta status by a product and the point at which the product is available for general release to customers have not been material. Accordingly, the Company has concluded that the amount of development costs capitalizable under the provisions of SFAS No. 86 was not material to the financial statements for the years ended December 31, 1994, 1995 and 1996. Therefore, the Company has charged all software development costs to expense as incurred for the years ended December 31, 1994, 1995 and 1996. F-9 67 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) WARRANTY COSTS The Company generally warranties its products for 90 days and provides for estimated warranty costs upon shipment of such products. Warranty costs have not been and are not anticipated to be significant. CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk with respect to accounts receivable are limited due to the wide variety of customers and markets for which the Company's services are provided as well as their dispersion across many different geographic areas. As a result, as of December 31, 1995 and 1996, the Company did not consider itself to have any significant concentrations of credit risk. During 1996, the Company's five largest customers accounted for approximately 26.6% of the Company's total revenues. In 1995, the Company's five largest customers accounted for approximately 25.0% of its total revenues. Although the particular customers may change from period to period, the Company expects that large sales to a limited number of customers will continue to account for a significant percentage of its revenues in any particular period for the foreseeable future. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Pro forma net income per common and common equivalent share is computed using the weighted average number of shares of common stock and dilutive common stock equivalent shares ("CSEs") from stock options using the treasury stock method. Additionally, the weighted average common and common equivalent shares outstanding reflect the shares issued as a result of the combination of Melita, Melita Europe and Inventions and the effects of the stock recapitalization discussed in Note 8 as if the events occurred at the beginning of the period. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common stock and CSEs issued at prices below the expected public offering price during the 12-month period prior to filing of the registration statement in connection with the Company's planned Offering have been included in the calculation as if they were outstanding for all periods presented prior to the Offering, regardless of whether they are dilutive. Historical net income per share has not been presented in view of the S corporation status in prior periods and the anticipated change in capital structure upon closing of the planned Offering. FAIR VALUE OF FINANCIAL INSTRUMENTS The book values of accounts receivable, accounts payable and other financial instruments approximate their fair values principally because of the short-term maturities of these instruments. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company's fair value of long-term debt was not significantly different than the stated value at December 31, 1995 and 1996. F-10 68 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) ACCRUED LIABILITIES Accrued liabilities include the following as of December 31, 1995 and 1996 (in thousands):
1995 1996 ------ ------ Accrued salaries and wages.................................. $1,666 $2,437 Other current liabilities................................... 1,193 807 Accrued royalties........................................... 293 689 Accrued rent................................................ 264 277 ------ ------ Total accrued liabilities......................... $3,416 $4,210 ====== ======
NEW ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not have a significant impact on the Company's combined financial statements. The American Institute of Certified Public Accountants has issued an exposure draft to amend the provisions of Statement of Position 91-1, "Software Revenue Recognition." The adoption of the standards in the current version of the exposure draft would not be expected to have a significant impact on the Company's combined financial statements. RECLASSIFICATIONS Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. 2. NOTE PAYABLE TO SHAREHOLDER Note payable to shareholder is as follows as of December 31, 1995 and 1996 (in thousands):
1995 1996 ------ ------ Note payable to shareholder; due in equal quarterly installments of $187,500 beginning July 1, 1996, interest payable monthly at the prime rate plus 1% (9.25% at December 31, 1996)........................................ $3,000 $2,625 Less current maturities..................................... 375 2,625 ------ ------ Note payable to shareholder, net of current maturities...... $2,625 $ 0 ====== ======
Interest paid to shareholder was $251,000, $294,000 and $271,000 for the years ended December 31, 1994, 1995 and 1996, respectively. The note payable to shareholder contains an acceleration provision at the option of the shareholder upon certain changes in capital structure, as defined. As a result of the stock recapitalization discussed in Note 9, that right became exercisable. The note has therefore been classified as current at December 31, 1996 as a result of the acceleration option. 3. INCOME TAXES In connection with the planned Offering, the Company will convert from an S corporation to a C corporation and, accordingly, will be subject to future federal and state income taxes. Upon conversion to F-11 69 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) C corporation status, the Company will record deferred taxes for which it will be responsible following termination of S corporation status. The assets below will be reflected on the balance sheet of the Company with a corresponding non-recurring income amount in the statement of operations at the completion of the Offering. The components of the pro forma total deferred tax assets as of December 31, 1996 are as follows (in thousands): Deferred tax assets: Deferred revenue.......................................... $ 321 Other accrued liabilities................................. 198 Allowance for doubtful accounts........................... 171 Accrued commissions....................................... 115 Accrued rent.............................................. 105 Depreciation.............................................. 95 Inventory................................................. 56 ------ Total deferred tax assets......................... $1,061 ======
The following summarizes the components of the pro forma income tax provision for the years ended December 31, 1994, 1995 and 1996 (in thousands):
1994 1995 1996 ------ ------ ------ Current domestic taxes: Federal................................................ $ 664 $1,572 $2,775 State.................................................. 78 185 326 Foreign taxes............................................ (9) 2 (75) Deferred taxes........................................... 431 35 (199) ------ ------ ------ $1,164 $1,794 $2,827 ====== ====== ======
A reconciliation from the federal statutory rate to the pro forma tax provision for the years ended December 31, 1994, 1995 and 1996 is as follows:
1994 1995 1996 ---- ---- ---- Statutory federal tax rate................................. 34.0% 34.0% 34.0% State income taxes, net of federal tax benefit............. 4.0 4.0 4.0 Foreign operations......................................... 4.0 (0.9) (1.3) Other...................................................... 1.6 0.7 0.5 ---- ---- ---- 43.6% 37.8% 37.2% ==== ==== ====
The Company's effective tax rate is affected by the income or loss at Melita Europe. Melita Europe incurred a loss in fiscal 1994 and had income in 1995 and 1996. This effect is included above as foreign operations. The Company's net operating loss carryforwards are immaterial at December 31, 1996. 4. BENEFIT PLAN Melita has a profit-sharing plan (the "Plan") for substantially all Melita employees meeting the eligibility requirements as defined in the plan agreement. The Plan provides for annual contributions by Melita at the discretion of the board of directors. The Plan also contains a 401(k) feature which allows participants to contribute up to 15% of their eligible compensation, as defined, and provides for discretionary employer matching contributions. Total contributions by Melita to the Plan were $92,000, $90,000 and $119,000 for fiscal 1994, 1995 and 1996, respectively. F-12 70 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 5. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS At December 31, 1996, the present value of future minimum capital lease payments and future minimum operating lease payments (including leases with related parties) under noncancelable operating leases were as follows (in thousands):
CAPITAL OPERATING LEASES LEASES ------- --------- 1997........................................................ $19 $ 659 1998........................................................ 0 628 1999........................................................ 0 624 2000........................................................ 0 581 2001........................................................ 0 589 Thereafter.................................................. 0 2,369 --- ------ Total future minimum lease payments............... 19 $5,450 ====== Less amounts representing interest.......................... 0 --- Present value of future minimum lease payments.............. $19 ===
The Company's capital and operating leases are primarily for equipment and rental of facilities. Total rental expense for operating leases was $840,000, $728,000 and $751,000 in fiscal 1994, 1995 and 1996, respectively. In August 1994, the Company entered into a lease agreement with an unrelated party to lease land and buildings commencing April 1995. The agreement provides for annual rentals of approximately $542,000 to $636,000 per year over a ten-year term. In November 1995, the Company's majority shareholder purchased the land and buildings and now rents them to the Company under the terms of the original lease. Rent expense paid to the shareholder was $60,000 and $543,000 in fiscal 1995 and 1996, respectively. LEGAL PROCEEDINGS Many of the Company's installations involve products that are critical to the operations of its clients' businesses. Any failure in a Company product could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. Although the Company attempts to limit contractually its liability for damages arising from product failures or negligent acts or omissions, there can be no assurance the limitations of liability set forth in its contracts will be enforceable in all instances. One of the Company's customers has filed suit in the Circuit Court for Knox County, Tennessee asserting, among other things, that the Company misrepresented the functionality of its products and breached its contract with the customer for delivery of its products and claiming not less than $2.0 million in damages. The Company intends to vigorously defend this action and, based upon information currently available, believes that the action will not have a material impact on the Company. However, because the proceedings are at a preliminary stage and discovery has not yet begun, the Company cannot predict the ultimate outcome of this suit and there can be no assurance that the Company will be successful in the proceedings. In management's opinion, the ultimate resolution of this matter will not have a material adverse effect on the Company's combined financial position, liquidity or results of operations. The Company is subject to other legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the amount of potential liability with respect to these actions will not materially affect the financial position or results of operations of the Company. F-13 71 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) RELATED-PARTY TRANSACTIONS During 1994, the Company incurred and paid $325,000 in research and development fees to a related party (through family relationship). The Company did not incur these fees in 1995 or 1996. 6. STOCK OPTION PLANS During 1992, the Company approved a stock option plan for key employees for which 640,000 shares of common stock were authorized for use in the plan. During 1995, the number of authorized shares was increased to 1,000,000 shares of common stock. Options under the plan are granted at estimated fair market value as determined by the board of directors and are exercisable 14 months after an initial public offering or ratably over a three-year period beginning seven years from the plan initiation date, but in no case can the exercise period continue beyond 10 years. Options granted vest ratably over a four- or five-year employment period. The Company reserves the right to purchase vested options at the then-estimated fair market value, less the applicable exercise price prior to the date of an initial public offering. During 1994, 1995 and 1996, the Company purchased 22,311, 44,294 and 30,250, respectively, vested but unexercisable options held by terminated employees for $3,570, $2,658 and $39,774, respectively. Cash paid to repurchase options is expensed as incurred. Activity for the stock option plan is as follows:
OPTION OPTIONS PRICE -------- ----------- Options outstanding at December 31, 1993.................... 303,848 $2.75-$2.96 Granted................................................... 36,375 2.91 Exercised................................................. 0 Forfeited/repurchased..................................... (58,098) 2.75- 2.96 -------- Outstanding at December 31, 1994............................ 282,125 2.75- 2.96 Granted................................................... 740,525 2.81- 3.00 Exercised................................................. 0 Forfeited/repurchased..................................... (161,200) 2.81 -------- Outstanding at December 31, 1995............................ 861,450 2.75- 3.00 Granted................................................... 133,785 4.07 Exercised................................................. 0 Forfeited/repurchased..................................... (57,463) 2.75- 4.07 -------- Outstanding at December 31, 1996............................ 937,772 2.75- 4.07 ======== Exercisable at December 31, 1996............................ 0 ========
At December 31, 1996, options to purchase 62,228 shares were available for future grant and no shares were exercisable due to the stock option plan provision for the exercise date noted above. On February 6, 1997, the Company granted options to purchase an aggregate of 43,325 shares of common stock at $5.50 per share under the 1992 stock option plan. During 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" which defines a fair value-based method of accounting for an employee stock option plan or similar equity instrument. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting in APB F-14 72 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) No. 25 must make pro forma disclosures of net income and, if presented, earnings per share, as if the fair value-based method of accounting defined in the statement had been applied. The Company has elected to account for its stock-based compensation plan under APB No. 25; however, the Company has computed for pro forma disclosure purposes the value of all options granted during 1995 and 1996 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions used for grants in 1995 and 1996: Risk-free interest rate..................................... 5.4%-7.8% Expected dividend yield..................................... 0 Expected lives.............................................. 4-5 years Expected volatility......................................... 65%
The total value of the options granted during the years ended December 31, 1995 and 1996 were computed as approximately $996,000 and $264,000, respectively, which would be amortized over the vesting period of the options. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company's reported pro forma net income and pro forma net income per share for the years ended December 31, 1995 and 1996 would have decreased to the following pro forma amounts (in thousands):
1995 1996 ------ ------ Pro forma net income: As reported in the financial statements................... $2,955 $4,782 Pro forma in accordance with SFAS No. 123................. 2,867 4,581 Pro forma net income per common and common equivalent share As reported in the financial statements................... -- .42 Pro forma in accordance with SFAS No. 123................. -- .40
1997 STOCK OPTION PLAN On February 6, 1997, the Company approved the 1997 Stock Option Plan (the "1997 Plan") for which 1,350,000 shares of common stock were authorized for issuance less any options issued under the 1992 stock option plan. Options under the 1997 Plan are granted at the estimated fair market value and are exercisable based on the specific terms of the stock option grant, but in no case can extend beyond ten years past the date of grant. The options vest primarily over a four-year period subject to acceleration upon the achievement of certain performance measures. On February 6, 1997, the Company issued options to purchase an aggregate of 125,000 shares of common stock at $5.50 per share under the 1997 Plan. As of February 28, 1997, 20,000 options were exercisable under the 1997 Plan. 7. SEGMENT AND GEOGRAPHIC INFORMATION The Company is a multinational corporation with operations in the United States and the United Kingdom. F-15 73 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The following represents total revenues, net income and total assets of the following countries representing over 10% of the combined totals for the years ended or as of December 31, 1994, 1995 and 1996 (in thousands):
1994 1995 1996 ------- ------- ------- United States: Total revenues............................................ $21,483 $27,356 $37,568 Net income................................................ 3,093 4,624 7,157 Total assets.............................................. 16,704 19,305 23,799 United Kingdom: Total revenues............................................ $ 1,309 $ 3,252 $ 4,292 Net (loss) income......................................... (421) 125 452 Total assets.............................................. 931 1,623 3,270 Other: Total revenues............................................ $ 4,364 $ 4,674 $ 5,680
8. SUBSEQUENT EVENTS INITIAL PUBLIC OFFERING In the second quarter of 1997, the Company is planning an initial public offering of its common stock. There can be no assurance that the Offering will be completed. Prior to the Offering, the Company will pay a cash distribution to shareholders equal to the amount of undistributed S corporation earnings for both Melita and Inventions from September 1, 1988 through the date of the Offering. COMBINATION Concurrent with the Offering, the shareholders of Melita Europe and Inventions will contribute their respective shares in exchange for 3,143,395 shares of Melita. The combination will be treated similar to a pooling of interest and no step-up in basis will be recorded as the entities involved are under common control. UNAUDITED PRO FORMA INFORMATION The accompanying unaudited pro forma combined balance sheet as of December 31, 1996 is based on the Company's historical balance sheet as of December 31, 1996, as adjusted to reflect (i) the combination of Melita, Melita Europe and Inventions through the issuance of 3,143,395 shares of Melita's no par value common stock (post recapitalization and reverse stock split), (ii) the effects on historical retained earnings of a planned cash distribution to shareholders of the undistributed S corporation earnings at December 31, 1996 and accrued interest thereon discussed below, (iii) the payment of the note payable to shareholder of $2,625,000 and (iv) the recording of current deferred tax assets of approximately $1,061,000 as a result of the change in corporate filing status upon the consummation of the offering discussed in Note 3. The pro forma information does not give effect to the proceeds to the Company of the Offering. Using a portion of the proceeds of the Offering and other funds, the Company intends to distribute to the pre-offering shareholders all undistributed S corporation earnings from September 1, 1988 to the effective date of the Offering. At December 31, 1996, the undistributed S corporation earnings of the Company were estimated to be approximately $14,400,000. Subsequent to year end, the Company distributed these amounts to the principal shareholders in the form of approximately $1,500,000 in cash and two notes having an aggregate principal amount of approximately $12,900,000. The notes carry an interest rate equal to the applicable federal rate under the Internal Revenue Code, (approximately 7% at February 7, 1997). The principal amount of the notes, together with the accrued interest on the notes through the effective date of the F-16 74 MELITA INTERNATIONAL CORPORATION, MELITA EUROPE LIMITED AND INVENTIONS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Offering (estimated to be approximately $200,000), will be repaid using a portion of the proceeds of the Offering. The Company expects to accumulate additional earnings from January 1, 1997 to the effective date of the Offering which will also be distributed to the pre-offering shareholders. 9. STOCK RECAPITALIZATION On February 7, 1997, the Company and Inventions recapitalized their authorized, issued, and outstanding common stock by declaring a stock dividend of 99 shares of nonvoting common stock with respect to each outstanding share of voting common stock. In connection with the stock dividend, the Company amended its articles of incorporation to increase its authorized capital stock to 2,000,000,000 shares, consisting of 20,000,000 shares of voting common stock and 1,980,000,000 shares of nonvoting common stock and Inventions amended its articles of incorporation to increase its authorized capital stock to 10,000 shares, consisting of 100 shares of voting common stock and 9,900 shares of nonvoting common stock. Concurrently with the effective date of the Offering, the Company will effect a 100 to 1 reverse stock split to return the number of authorized, issued, and outstanding shares to the original number of shares. Accordingly, the financial statements reflect the capitalization of the Company as if the stock dividend and the reverse stock split occurred at the beginning of each period presented. Additionally, upon completion of this Offering, the Company's authorized capital stock will consist of 100,000,000 shares of common stock, no par value per share, and 20,000,000 shares of preferred stock, no par value per share. F-17 75 ====================================================== No dealer, sales representative or any other person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities other than the shares of Common Stock to which it relates or an offer to, or a solicitation of, any person in any jurisdiction in which such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or that the information contained herein is correct as of any time subsequent to the date hereof. ---------------------------- TABLE OF CONTENTS ----------------------------
Page ---- Prospectus Summary.................... 3 Risk Factors.......................... 6 Termination of S Corporation Status and Related Distributions........... 14 Use of Proceeds....................... 15 Dividend Policy....................... 15 Capitalization........................ 16 Dilution.............................. 17 Selected Combined Financial Data...... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19 Business.............................. 26 Management............................ 38 Principal Shareholders................ 45 Certain Transactions.................. 46 Description of Capital Stock.......... 48 Shares Eligible for Future Sale....... 52 Underwriting.......................... 53 Legal Matters......................... 54 Experts............................... 54 Additional Information................ 54 Index to Combined Financial Statements.......................... F-1
---------------------------- Until , 1997 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. ====================================================== ====================================================== 3,500,000 SHARES MELITA(R) INTERNATIONAL LOGO COMMON STOCK ------------------------ PROSPECTUS ------------------------ MONTGOMERY SECURITIES , 1997 ====================================================== 76 PART II ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission registration fee......... $10,606 National Association of Securities Dealers, Inc. fee........ 4,000 Nasdaq National Market listing fee.......................... * Accountants' fees and expenses.............................. * Legal fees and expenses..................................... * Blue Sky fees and expenses.................................. * Transfer Agent's fees and expenses.......................... * Printing and engraving expenses............................. * Miscellaneous............................................... * ------- Total Expenses.................................... * =======
- --------------- * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Amended and Restated Bylaws provide that the Company shall indemnify each of its officers, directors, employees and agents to the extent that he or she is or was a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director, officer, employee or agent of the Company, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding; provided, however, that no indemnification shall be made for (i) any appropriation, in violation of his duties, of any business opportunity of the Company, (ii) acts or omissions which involve intentional misconduct or a knowing violation of law, (iii) any liability under Section 14-2-832 of the GBCC, which relates to unlawful payments of dividends and unlawful stock repurchases and redemptions, or (iv) any transaction from which he or she derived an improper personal benefit. Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto also contains certain provisions pursuant to which certain officers, directors and controlling persons of the Company may be entitled to be indemnified by the Underwriters named therein. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES During the past three years, the Registrant has issued the securities set forth below which were not registered under the Securities Act. In connection with the Company's acquisition of all of the outstanding shares of Melita Europe and Inventions by share exchange, upon the effective date of this offering the Company will issue a total of 3,143,395 shares of its Common Stock to the former shareholders of Melita Europe and Inventions. The Registrant has issued stock options for an aggregate of 1,659,485 shares of its Common Stock under the 1992 Stock Option Plan and the 1997 Stock Option Plan. Options for an aggregate of 1,106,097 shares are currently outstanding at a weighted average exercise price of $3.42 per share. No underwriters were engaged in connection with any of the foregoing issuances of securities. The sale and issuance of shares listed above were exempt from registration under the Securities Act by virtue of Sections 3(a), 3(b) and 4(a) of the Securities Act and in reliance on Rule 701 and Regulation D promulgated thereunder. II-1 77 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits. The following is a list of exhibits filed as part of the Registration Statement.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1* -- Form of Underwriting Agreement. 2.1* -- Share Exchange Agreement by and between the Registrant and the shareholders of Melita Europe Limited. 2.2* -- Share Exchange Agreement by and between the Registrant and the shareholders of Inventions, Inc. 3.1 -- Restated Articles of Incorporation of the Registrant dated June 4, 1992, as amended February 7, 1997. 3.2 -- Bylaws of the Registrant. 3.3 -- Form of Amended and Restated Articles of Incorporation of the Registrant, to be effective upon the effectiveness of this offering. 3.4 -- Form of Amended and Restated Bylaws of the Registrant, to be effective upon the effectiveness of this offering. 4.1 -- See Exhibits 3.3 and 3.4 for provisions of the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws of the Registrant defining rights of the holders of Common Stock of the Registrant. 4.2 -- Specimen Stock Certificate. 5.1* -- Opinion of Morris, Manning & Martin, L.L.P., Counsel to the Registrant, as to the legality of the shares being registered. 10.1 -- Lease Agreement between the Registrant and 5051 Peachtree Corners Circle, L.L.C. 10.2 -- 1992 Stock Option Plan effective June 4, 1992, as amended March 1, 1997. 10.3 -- 1997 Stock Option Plan effective February 6, 1997. 10.4 -- Employee Stock Purchase Plan adopted March 1, 1997. 10.5 -- 401(k) Profit Sharing Plan as amended effective January 1, 1993. 10.6 -- Employment Agreement between the Registrant and Aleksander Szlam dated March 5, 1997. 10.7 -- Employment Agreement between the Registrant and J. Neil Smith dated March 5, 1997. 10.8 -- Form of Tax Indemnification Agreement between the Registrant and certain shareholders of the Registrant. 10.9 -- Form of Tax Indemnification Agreement between Inventions, Inc. and certain shareholders of Inventions, Inc. 10.10 -- $3,000,000 Note of the Registrant in favor of Aleksander Szlam dated June 19, 1992. 11.1 -- Statement re: Computation of Per Share Earnings. 21.1 -- List of Subsidiaries. 23.1 -- Consent of Arthur Andersen LLP. 23.2 -- Consent of BDO Stoy Hayward. 23.3* -- Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit 5.1). 24.1 -- Powers of Attorney (included on signature page). 27.1 -- Financial Data Schedule. (For SEC use only) 99.1 -- Report of Independent Public Accountants on Financial Statement Schedule.
- --------------- * To be filed by amendment. (b) Financial Statement Schedules: Schedule II -- Valuation and Qualifying Accounts. ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-2 78 (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The Registrant hereby undertakes that: (i) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the Registration Statement as of the time it was declared effective. (ii) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 79 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia on the 6th day of March, 1997. Melita International Corporation By: /s/ ALEKSANDER SZLAM ------------------------------------ Aleksander Szlam Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Aleksander Szlam and J. Neil Smith, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and any subsequent registration statements pursuant to Rule 462 under the Securities Act and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ALEKSANDER SZLAM Chairman of the Board and Chief March 6, 1997 - ----------------------------------------------------- Executive Officer (Principal Aleksander Szlam Executive Officer) /s/ J. NEIL SMITH Director March 6, 1997 - ----------------------------------------------------- J. Neil Smith /s/ MARK B. ADAMS Vice President -- Finance and March 6, 1997 - ----------------------------------------------------- Chief Financial Officer Mark B. Adams (Principal Financial and Accounting Officer)
II-4 80 SCHEDULE II MELITA INTERNATIONAL CORPORATION MELITA EUROPE LIMITED AND INVENTIONS, INC. VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
CHARGED BALANCE AT TO COSTS BALANCE BEGINNING AND AT END CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR -------------- ---------- -------- ------------- -------- 1994 Allowance for doubtful accounts............. $200,000 $146,000 116,000 $230,000 Allowance for inventory obsolescence........ 40,000 40,000 64,000 16,000 1995 Allowance for doubtful accounts............. 230,000 117,000 16,000 331,000 Allowance for inventory obsolescence........ 16,000 130,000 -- 146,000 1996 Allowance for doubtful accounts............. 331,000 260,000 104,000 487,000 Allowance for inventory obsolescence........ 146,000 831,000 492,000 485,000
- --------------- (1) Represents amounts written off EX-3.1 2 RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 RESTATED ARTICLES OF INCORPORATION OF MELITA INTERNATIONAL CORPORATION I. The name of the Corporation is Melita International Corporation. II. A. The total number of shares of capital stock that the Corporation shall be authorized to issue is Twenty Million (20,000,000) shares of no par value common stock ("Common Stock"). B. Each share of Common Stock shall be identical in all respects and for all purposes and entitled to one vote per share in all proceedings in which action may or is required to be taken by the stockholders of the Corporation. III. The registered office of the Corporation shall be at Powell, Goldstein, Frazer & Murphy, 191 Peachtree Street, N.E., 16th Floor, Atlanta, Georgia 30303, in Fulton County. The registered agent of the Corporation at such address shall be Scott Hobby. IV. The mailing address of the principal office of the principal office of the Corporation is Melita International Corporation, Corporate Headquarters, 6630 Bay Circle Norcross, Georgia 30071. V. No director shall have any personal liability to the Corporation or to its shareholders for monetary damages for breach of duty of care of other duty as director, by reason of any act or omission occurring subsequent to the date when this provision becomes effective, except that this provision shall not eliminate or limit the liability of a director for (a) any appropriation, in violation of his or her duties, of any business opportunity of the Corporation; (b) acts or omissions 2 which involve intentional misconduct or a knowing violation of law; (c) liabilities of a director imposed by Section 14-2-832 of the Georgia Business Corporation Code; or (d) any transaction from which the director derived an improper personal benefit. VI. Any action required by law or by the Bylaws of the Corporation to be taken at a meeting of the shareholders of the Corporation, and any action which may be taken at a meeting of the shareholders, may be taken without a meeting if a written consent, setting forth the action so taken, shall be signed by persons entitled to vote at a meeting those shares having sufficient voting power to cast not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote were present and voted. Notice of such action without a meeting by less than unanimous written consent shall be given within ten (1) [sic] days of the taking of such action to those shareholders of record on the date when the written consent if first executed and whose shares were not represented on the written consent. VII. The incorporator of the Corporation was Aleksander Szlam, who was then located at 1256 Woods Mill Drive Southeast, Marietta, Georgia 30067. VIII. These Restated Articles of Incorporation amend the original Articles of Incorporation of the Corporation by superseding and replacing the original Articles of Incorporation in their entirety. Each amendment to the original Articles of Incorporation was duly approved by the Board of Directors of the Corporation and by the shareholders of the Corporation in accordance with Section 14-2-1003 of the Georgia Business Corporation Code. -2- 3 IN WITNESS WHEREOF, Melita International Corporation has caused these Restated Articles of Incorporation to be executed by its duly authorized officer as of this 4th day of June, 1992. MELITA INTERNATIONAL CORPORATION BY: /S/ ALEKSANDER SZLAM ------------------------------ TITLE: CHIEF EXECUTIVE OFFICER -3- 4 ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION OF MELITA INTERNATIONAL CORPORATION Pursuant to section 14-2-1006 of the Georgia Business Corporation Code (the "Code"), Melita International Corporation, a Georgia corporation, hereby amends its Restated Articles of Incorporation as follows: Article II is hereby amended to read in its entirety as follows: Article II A. The Corporation shall have two classes of stock: Voting Common Stock ("Voting Stock") and Non-Voting Common Stock ("Non-Voting Stock"). B. The total number of shares of capital stock that the Corporation is authorized to issue is Two Billion (2,000,000,000) shares, which shall consist of Twenty Million (20,000,000) shares of Voting Stock, no par value per share, and One Billion Nine Hundred Eighty Million (1,980,000,000) shares of Non-Voting Stock, no par value per share. C. The designations and the powers, preferences, limitations and relative rights of the voting stock and the non-voting stock (collectively referred to as "common stock") are as follows: 1. Common Stock Classes Pari Passu. Except as set forth in Section C.2. Below, the Voting Stock and the Non-Voting Stock shall be equal in all respects and treated as a single class of common, including without limitation participating equally in any dividends, distributions in liquidation and other payments, and in any subdivisions and combinations of securities. 5 2. Voting rights. (a) The holders of Voting Stock shall be entitled to vote on each matter on which the shareholders of the Corporation shall be entitled to vote, and each holder of Voting Stock shall be entitled to one vote for each share of such stock held by such holder. (b) The holders of Non-Voting Stock shall not have any voting rights, except as otherwise required by applicable law, in which case holders of Non-Voting Stock shall vote (at the rate of one vote per share of Non-Voting stock held) as a single class on such matter unless otherwise required by law. IN WITNESS WHEREOF, the undersigned duly authorized officer of the Corporation has executed these Articles of Amendment to Restated Articles of Incorporation on the 7th day of February, 1997. /s/ Aleksander Szlam --------------------------------------- Aleksander Szlam, Chairman of the Board and Chief Executive Officer -2- EX-3.2 3 BYLAWS OF THE REGISTRANT 1 EXHIBIT 3.2 BY LAWS OF MELITA INTERNATIONAL CORPORATION ARTICLE I OFFICES The corporation shall at all times maintain a registered office in the State of Georgia and a registered agent at that address but may have other offices located within or outside the State of Georgia as the Board of Directors may determine. ARTICLE II SHAREHOLDERS' MEETINGS 2.1 Annual Meeting. A meeting of shareholders of the Corporation shall be held annually, within five (5) months of the end of each fiscal year of the Corporation. The annual meeting shall be held at such time and place and on such date as the Directors shall determine from time to time and as shall be specified in the notice of the meeting. 2.2 Special Meetings. Special meetings of the shareholders may be called at any time by the Chief Executive Officer or any holder or holders of as much a twenty-five percent of the outstanding capital stock of the corporation. Special meetings shall be held at such a time and place and on such date as shall be specified in the notice of the meeting. 2.3 Place. Annual or special meetings of shareholders may be held within or without the State of Georgia. 2.4 Notice. Notice of annual or special shareholders meetings stating place, day and hour of the meeting shall be given in writing not less than ten nor more than sixty days before the date of the meeting, either mailed to the last known address or personally given to each shareholder. Notice of a meeting may be waived by an instrument in writing executed before or after the meeting. The waiver need not specify the purpose of the meeting or the business transacted, unless one of the purposes of the meeting concerns a plan of merger or consolidation, in which event the waiver shall comply with the further requirements of law concerning such 2 waivers. Attendance at such meeting in person or by proxy shall constitute a waiver of notice thereof. Notice of any special meeting of shareholders shall state the purpose or purposes for which the meeting is called. The notice of any meeting at which amendments to or restatements of the articles of incorporation, merger or consolidation of the corporation, or the disposition of corporate assets requiring shareholder approval are to be considered shall state such purpose, and further comply with all requirements of law. 2.5 Quorum. At all meetings of shareholders a majority of the outstanding shares of stock shall constitute a quorum for the transaction of business, and no resolution or business shall be transacted without the favorable vote of the holders of a majority of the shares represented at the meeting and entitled to vote. A lesser number may adjourn from day to day, and shall announce the time and place to which the meeting is adjourned. 2.6 Action in Lieu of Meeting. Any action to be taken at a meeting of the shareholders of the corporation, or any action that may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by the holders of all of the shares entitled to vote with respect to the subject matter thereof, or by the holders of such lesser number of shares as may be required in accordance with any lawful provision of the Articles of Incorporation, and any further requirements of law pertaining to such consents have been complied with. ARTICLE III DIRECTORS 3.1 Management. Subject to these Bylaws, or any lawful agreement between the shareholders, the full and entire management of the affairs and business of the corporation shall be vested in the Board of Directors, which shall have and may exercise all of the powers that may be exercised or performed by the corporation. 3.2 Number of Directors. The shareholders shall fix by resolution the precise number of members of the Board of Directors, provided that the Board of Directors shall consist of not -2- 3 fewer than two (2) nor more than nine (9) members. Directors shall be elected at each annual meeting of the shareholders and shall serve for a term of one year and until their successors are elected. A majority of said Directors shall constitute a quorum for the transaction of business. All resolutions adopted and all business transacted by the Board of Directors shall require the affirmative vote of a majority of the Directors present at the meeting. 3.3 Vacancies. The Directors may fill the place of any Director which may become vacant prior to the expiration of his or her term, such appointment by the Directors to continue until the expiration of the term of the Director whose place has become vacant, or may fill any directorship created by reason of an increase in the number of directors, such appointment by the Directors to continue for a term of office until the next election of directors by the shareholders and until the election of the successor. 3.4 Meetings. The Directors shall meet annually, without notice, following the annual meeting of the shareholders. Special meetings of the Directors may be called at any time by the Chief Executive Officer or by any two Directors, on two days' written notice to each Director, which notice shall specify the time and place of the meeting. Notice of any such meeting may be waived by an instrument in writing executed before or after the meeting. Directors may attend and participate in meetings either in person or by means of conference telephones or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by means of such communication equipment shall constitute presence in person at any meeting. Attendance in person at such meeting shall constitute a waiver of notice thereof. 3.5 Action in Lieu of Meeting. Any action to be taken at a meeting of the Directors, or any action that may be taken at a meeting of the Directors, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors and any further requirements of law pertaining to such consents have been complied with. -3- 4 3.6 Removal. Any Director may be removed from office, with or without cause, upon the majority vote of the shareholders, at a meeting with respect to which notice of such purpose is given. ARTICLE IV OFFICERS 4.1 General Provisions. The officers of the corporation shall consist of a Chief Executive Officer, a President, a Secretary and a Treasurer who shall be elected by the Board of Directors, and such other officers as may be elected by the Board of Directors or appointed as provided in these Bylaws. Each officer shall be elected or appointed for a term of office running until the meeting of the Board of Directors following the next annual meeting of the shareholders of the corporation, or such other term as provided by resolution of the Board of Directors or the appointment to office. Each officer shall serve for the term of office for which he is elected or appointed and until his or her successor has been elected or appointed and has qualified or his or her earlier resignation, removal from office or death. Any two or more offices may be held by the same person. 4.2 Chief Executive Officer. The Chief Executive Officer of the corporation shall have general and active management of the operation of the corporation. He or she shall be responsible for the administration of the corporation, including general supervision of the policies of the corporation and general and active management of the financial affairs of the corporation, and shall execute bonds, mortgages or other contracts in the name and on behalf of the corporation. 4.3 President. The President shall perform such duties and have such powers as may be delegated by the Chief Executive Officer or the Board of Directors. 4.4 Secretary. The Secretary shall keep minutes of all meetings of the shareholders and Directors and have charge of the minute books, stock books and seal of the corporation and -4- 5 shall perform such other duties and have such other powers as may from time to time be delegated to him or her by the President, the Chief Executive Officer or the Board of Directors. 4.5 Treasurer. The Treasurer shall be charged with the management of the financial affairs of the corporation, shall have the power to recommend action concerning the corporation's affairs to the President or the Chief Executive Officer, and shall perform such other duties and have such other powers as may from time to time be delegated to him or her by the President, the Chief Executive Officer or the Board of Directors. 4.6 Assistant Secretaries and Treasurers. Assistants to the Secretary and Treasurer may be appointed by the President or the Chief Executive Officer or elected by the Board of Directors and shall perform such duties and have such powers as shall be delegated to them by the President, the Chief Executive or the Board of Directors. 4.7 Vice Presidents. The corporation may have one or more Vice Presidents, appointed by the President or the Chief Executive Officer, who shall perform such duties and have such powers as may be delegated by the President, the Chief Executive Officer or the Board of Directors. ARTICLE V CAPITAL STOCK 5.1 Share Certificates. Share certificates shall be numbered in the order in which they are issued. They shall be signed by the Chief Executive Officer and the Secretary and the seal of the corporation shall be affixed thereto. Share certificates shall be kept in a book and shall be issued in consecutive order therefrom. The name of the person owning the shares, the number of shares, and the date of issue shall be entered on the stub of each certificate. Share certificates exchanged or returned shall be cancelled by the Secretary and placed in their original place in the stock book. -5- 6 5.2 Transfer of Shares. Transfers of shares shall be made on the stock books of the corporation by the holder in person or by power of attorney, on surrender of the old certificate for such shares, duly assigned. 5.3 Voting. The holders of the capital stock shall be entitled to one vote for each share of stock standing in their name. ARTICLE VI SEAL The seal of the corporation shall be in such form as the Board of Directors may from time to time determine. In the event it is inconvenient to use such a seal at any time, the signature of the corporation followed by the word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the corporation. The seal shall be in the custody of the Secretary and affixed by the Secretary's assistants on the certificates of stock and other appropriate papers. ARTICLE VII AMENDMENT These Bylaws may be amended by majority vote of the Board of Directors of the Corporation or by majority vote of the shareholders, provided that the shareholders may provide by resolution that any Bylaw provision repealed, amended, adopted or altered by them may not be repealed, amended, adopted or altered by the Board of Directors. ARTICLE VIII INDEMNIFICATION Each person who is or was a Director or officer of the Corporation, and each person who is or was a Director or officer of the Corporation who at the request of the Corporation is serving or has served as an officer, Director, partner, joint venturer or trustee of another corporation, partnership, joint venture, trust or other enterprise shall be indemnified by the Corporation against those expenses (including attorneys' fees), judgments, fines and amounts paid in settlement which are allowed to be paid or reimbursed by the Corporation under the laws of the -6- 7 State of Georgia and which are actually and reasonably incurred in connection with any action, suit, or proceeding, pending or threatened, whether civil, criminal, administrative or investigative, in which such person may be involved by reason of his or her being or having been a Director or officer of this Corporation or of such other enterprises. Such indemnification shall be made only in accordance with the laws of the State of Georgia and subject to the conditions prescribed therein. In any instance where the laws of the State of Georgia permit indemnification to be provided to persons who are or have been an officer or Director of the Corporation or who are or have been an officer, Director, partner, joint venturer or trustee of any such other enterprise only on a determination that certain specified standards of conduct have been met, upon application for indemnification by any such person the Corporation shall promptly cause such determination to be made (i) by the Board of Directors by majority vote of a quorum consisting of Directors not at the time parties to the proceeding; (ii) if a quorum cannot be obtained by majority vote of a committee duly designated by the Board of Directors (in which designation Directors who are parties may participate), consisting solely of two or more Directors not at the time parties to the proceeding; (iii) by special legal counsel selected by the Board of Directors or its committee in the manner prescribed in (i) or (ii), or if a quorum of the Board of Directors cannot be obtained under (i), and a committee cannot be designated under (ii), selected by majority vote of the full Board of Directors (in which selection directors who are parties may participate); or (iv) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination. As a condition to any such right of indemnification, the Corporation may require that it be permitted to participate in the defense of any such action or proceeding through legal counsel designated by the Corporation and at the expense of the Corporation. The Corporation may purchase and maintain insurance on behalf of any such persons whether or not the Corporation would have the power to indemnify such officers and Directors against any liability under the laws of the State of Georgia. If any expenses or other amounts are -7- 8 paid by way of indemnification, other than by court order, action by shareholders, or by an insurance carrier, the Corporation shall provide notice of such payment to the shareholders in accordance with the provisions of the laws of the State of Georgia. -8- EX-3.3 4 AMENDED AND RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.3 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MELITA INTERNATIONAL CORPORATION Pursuant to Sections 14-2-1001 and 14-2-1003 of the Georgia Business Corporation Code, Melita International Corporation hereby amends and restates its Articles of Incorporation in their entirety and substitutes the following in lieu thereof: ARTICLE ONE NAME The name of the corporation is Melita International Corporation. ARTICLE TWO CAPITALIZATION The corporation shall have authority, exercisable by its Board of Directors, to issue up to 100,000,000 shares of common stock, no par value per share ("Common Stock"), and 20,000,000 shares of preferred stock, no par value per share ("Preferred Stock"), any part or all of which shares of Preferred Stock may be established and designated from time to time by the Board of Directors, in such series and with such preferences, limitations, and relative rights as may be determined by the Board of Directors. ARTICLE THREE STAGGERED BOARD OF DIRECTORS Effective at the 1997 annual meeting, the Board of Directors shall be divided into three classes to be known as Class I, Class II and Class III, which shall be as nearly equal in number as possible. Except in case of death, resignation, disqualification, or removal, each director shall serve for a term ending on the date of the third annual meeting of shareholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the 1998 annual meeting of shareholders; each initial director in Class II shall hold office until the 1999 annual meeting of shareholders; and each initial director in Class III shall hold office until the 2000 annual meeting of shareholders. In the event of any increase or decrease in the authorized number of directors, the newly created or eliminated directorships resulting from such an increase or decrease shall be apportioned among the three classes of directors so that the three classes remain as nearly equal in size as possible; provided, however, that there shall be no classification of additional directors elected by the Board of Directors until the next meeting of shareholders called for the purposes of electing directors, at which meeting the terms of all such additional directors shall expire, and such additional directors positions, if they are to be continued, shall be apportioned among the classes of directors and nominees therefor shall be submitted to the shareholders for their vote. 2 ARTICLE FOUR LIMITATION ON DIRECTOR LIABILITY No director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for breach of the duty of care or any other duty as a director, except that such liability shall not be eliminated for: (i) any appropriation, in violation of the director's duties, of any business opportunity of the corporation; (ii) acts or omissions that involve intentional misconduct or a knowing violation of law; (iii) liability under Section 14-2-832 (or any successor provision or redesignation thereof) of the Georgia Business Corporation Code; and (iv) any transaction from which the director received an improper personal benefit. If at any time the Georgia Business Corporation Code (the "Code") shall have been amended to authorize the further elimination or limitation of the liability of a director, then the liability of each director of the corporation shall be eliminated or limited to the fullest extent permitted by the Code, as so amended, without further action by the shareholders, unless the provisions of the Code, as amended, require further action by the shareholders. Any repeal or modification of the foregoing provisions of this Article Six shall not adversely affect the elimination or limitation of liability or alleged liability pursuant hereto of any director of the corporation for or with respect to any alleged act or omission of the director occurring prior to such a repeal or modification. ARTICLE FIVE SHAREHOLDER ACTION WITHOUT MEETING BY LESS THAN UNANIMOUS CONSENT The shareholders, without a meeting, may take any action required or permitted to be taken at a meeting of the shareholders, if written consent setting forth the action to be taken is signed by those persons who would be entitled to vote at a meeting those shares having voting power to cast not less than the minimum number (or numbers, in the case of voting by classes) of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote were present and voted. An action by less than unanimous consent may not be taken with respect to any election of directors as to which shareholders would be entitled to cumulative voting. -2- 3 ARTICLE SIX CONSIDERATION OF INTERESTS OF NON-SHAREHOLDER CONSTITUENCIES The Board of Directors, any committee of the Board of Directors and any individual Director, in discharging the duties of their respective positions and in determining what is believed to be in the best interest of the Corporation, may in their sole discretion consider the interests of the employees, customers, suppliers and creditors of the Corporation and its subsidiaries, the communities in which offices or other establishments of the Corporation and its subsidiaries are located, and all other factors such Directors consider pertinent, in addition to considering the effects of any action on the Corporation and its shareholders. Notwithstanding the foregoing, this Article Six shall not be deemed to provide any of the foregoing constituencies any right to be considered in any such discharging of duties or determination. ARTICLE SEVEN AMENDMENTS Notwithstanding any other provision of these Articles of Incorporation, the Corporation's Bylaws or law, neither Articles Three, Four, Five or Six hereof nor this Article Seven may be amended or repealed except upon the affirmative vote of holders of at least 66 2/3% of the total number of votes of the then outstanding shares of capital stock of the Company that are entitled to vote generally in the election of directors, voting together as a single class. IN WITNESS WHEREOF, the undersigned executes these Amended and Restated Articles of Incorporation on _______________, 1997. ____________________________ Aleksander Szlam Chairman of the Board and Chief Executive Officer -3- EX-3.4 5 AMENDED AND RESTATED BYLAWS OF MELITA 1 EXHIBIT 3.4 AMENDED AND RESTATED BYLAWS OF MELITA INTERNATIONAL CORPORATION TABLE OF CONTENTS i 2
Page ARTICLE ONE OFFICE .......................................... 1 1.1 REGISTERED OFFICE AND AGENT ............................. 1 1.2 PRINCIPAL OFFICE ........................................ 1 1.3 OTHER OFFICES ........................................... 1 ARTICLE TWO SHAREHOLDERS' MEETINGS .......................... 1 2.1 PLACE OF MEETINGS ....................................... 1 2.2 ANNUAL MEETINGS ......................................... 2 2.3 SPECIAL MEETINGS ........................................ 2 2.4 NOTICE OF MEETINGS ...................................... 2 2.5 WAIVER OF NOTICE ........................................ 2 2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT .............. 2 2.7 VOTING OF SHARES ........................................ 3 2.8 PROXIES ................................................. 3 2.9 PRESIDING OFFICER ....................................... 3 2.10 ADJOURNMENTS .......................................... 4 2.11 CONDUCT OF THE MEETING ................................ 4 2.12 ACTION OF SHAREHOLDERS WITHOUT A MEETING .............. 4 2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS ................. 4 ARTICLE THREE BOARD OF DIRECTORS ............................ 5 3.1 GENERAL POWERS .......................................... 5 3.2 NUMBER, ELECTION AND TERM OF OFFICE ..................... 5 3.3 REMOVAL OF DIRECTORS .................................... 5 3.4 VACANCIES ............................................... 6 3.5 COMPENSATION ............................................ 6 3.6 COMMITTEES OF THE BOARD OF DIRECTORS .................... 6 3.7 QUALIFICATION OF DIRECTORS .............................. 6 3.8 CERTAIN NOMINATION REQUIREMENTS ........................ 6 ARTICLE FOUR MEETINGS OF THE BOARD OF DIRECTORS ............. 7 4.1 REGULAR MEETINGS ........................................ 7 4.2 SPECIAL MEETINGS ........................................ 7 4.3 PLACE OF MEETINGS ....................................... 7 4.4 NOTICE OF MEETINGS ...................................... 7 4.5 QUORUM .................................................. 8 4.6 VOTE REQUIRED FOR ACTION ................................ 8 4.7 PARTICIPATION BY CONFERENCE TELEPHONE ................... 8 4.8 ACTION BY DIRECTORS WITHOUT A MEETING ................... 8 4.9 ADJOURNMENTS ............................................ 8 4.10 WAIVER OF NOTICE ...................................... 8 ARTICLE FIVE OFFICERS ....................................... 9 5.1 OFFICES ................................................. 9 5.2 TERM .................................................... 9 5.3 COMPENSATION ............................................ 9 5.4 REMOVAL ................................................. 9
3 5.5 CHAIRMAN OF THE BOARD ................................... 9 5.6 CHIEF EXECUTIVE OFFICER ................................. 10 5.7 PRESIDENT ............................................... 10 5.8 VICE PRESIDENTS ......................................... 10 5.9 SECRETARY ............................................... 10 5.10 TREASURER ............................................. 10 ARTICLE SIX DISTRIBUTIONS AND DIVIDENDS ..................... 11 ARTICLE SEVEN SHARES ........................................ 11 7.1 SHARE CERTIFICATES ...................................... 11 7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS . 11 7.3 TRANSFERS OF SHARES .................................... 11 7.4 DUTY OF CORPORATION TO REGISTER TRANSFER ................ 12 7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES ................. 12 7.6 FIXING OF RECORD DATE ................................... 12 7.7 RECORD DATE IF NONE FIXED ............................... 12 ARTICLE EIGHT INDEMNIFICATION ............................... 12 8.1 INDEMNIFICATION OF DIRECTORS ............................ 13 8.2 INDEMNIFICATION OF OTHERS ............................... 13 8.3 OTHER ORGANIZATIONS .................................... 13 8.4 ADVANCES ................................................ 13 8.5 NON-EXCLUSIVITY ......................................... 14 8.6 INSURANCE ............................................... 14 8.7 NOTICE .................................................. 14 8.8 SECURITY ................................................ 14 8.9 AMENDMENT .............................................. 14 8.10 AGREEMENTS ............................................ 15 8.11 CONTINUING BENEFITS ................................... 15 8.12 SUCCESSORS ............................................ 15 8.13 SEVERABILITY .......................................... 15 8.14 ADDITIONAL INDEMNIFICATION ............................ 15 ARTICLE NINE MISCELLANEOUS .................................. 15 9.1 INSPECTION OF BOOKS AND RECORDS ......................... 16 9.2 FISCAL YEAR ............................................. 16 9.3 CORPORATE SEAL .......................................... 16 9.4 ANNUAL STATEMENTS ....................................... 16 9.5 NOTICE .................................................. 16 9.6 ELECTION OF "FAIR PRICE" STATUTE ....................... 17 9.7 ELECTION OF "BUSINESS COMBINATION" STATUTE ............. 17 ARTICLE TEN AMENDMENTS ...................................... 17
4 AMENDED AND RESTATED BYLAWS OF MELITA INTERNATIONAL CORPORATION 5 AMENDED AND RESTATED BYLAWS OF MELITA INTERNATIONAL CORPORATION References in these Amended and Restated Bylaws (these "Bylaws") to "Articles of Incorporation" are to the Articles of Incorporation of MELITA INTERNATIONAL CORPORATION, a Georgia corporation (the "Corporation"), as amended and restated from time to time. All of these Bylaws are subject to contrary provisions, if any, of the Articles of Incorporation (including provisions designating the preferences, limitations, and relative rights of any class or series of shares), the Georgia Business Corporation Code (the "Code"), and other applicable law, as in effect on and after the effective date of these Bylaws. References in these Bylaws to "Sections" shall refer to sections of the Bylaws, unless otherwise indicated. ARTICLE ONE OFFICE 1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a registered office and shall have a registered agent whose business office is the same as the registered office. 1.2 PRINCIPAL OFFICE. The principal office of the Corporation shall be at the place designated in the Corporation's annual registration with the Georgia Secretary of State. 1.3 OTHER OFFICES. In addition to its registered office and principal office, the Corporation may have offices at other locations either in or outside the State of Georgia. ARTICLE TWO SHAREHOLDERS' MEETINGS 2.1 PLACE OF MEETINGS. Meetings of the Corporation's shareholders may be held at any location inside or outside the State of Georgia designated by the Board of Directors or any other person or persons who properly call the meeting, or if the Board of Directors or such other person or persons do not specify a location, at the Corporation's principal office. 6 2.2 ANNUAL MEETINGS. The Corporation shall hold an annual meeting of shareholders, at a time determined by the Board of Directors, to elect directors and to transact any business that properly may come before the meeting. The annual meeting may be combined with any other meeting of shareholders, whether annual or special. 2.3 SPECIAL MEETINGS. Special meetings of shareholders of one or more classes or series of the Corporation's shares may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, and shall be called by the Corporation upon the written request (in compliance with applicable requirements of the Code) of the holders of shares representing not less than fifty percent (50%) or more of the votes entitled to be cast on each issue proposed to be considered at the special meeting. The business that may be transacted at any special meeting of shareholders shall be limited to that proposed in the notice of the special meeting given in accordance with Section 2.4 (including related or incidental matters that may be necessary or appropriate to effectuate the proposed business). 2.4 NOTICE OF MEETINGS. In accordance with Section 9.5 and subject to waiver by a shareholder pursuant to Section 2.5, the Corporation shall give written notice of the date, time, and place of each annual and special shareholders' meeting no fewer than 10 days nor more than 60 days before the meeting date to each shareholder of record entitled to vote at the meeting. The notice of an annual meeting need not state the purpose of the meeting unless these Bylaws require otherwise. The notice of a special meeting shall state the purpose for which the meeting is called. If an annual or special shareholders' meeting is adjourned to a different date, time, or location, the Corporation shall give shareholders notice of the new date, time, or location of the adjourned meeting, unless a quorum of shareholders was present at the meeting and information regarding the adjournment was announced before the meeting was adjourned; provided, however, that if a new record date is or must be fixed in accordance with Section 7.6, the Corporation must give notice of the adjourned meeting to all shareholders of record as of the new record date who are entitled to vote at the adjourned meeting. 2.5 WAIVER OF NOTICE. A shareholder may waive any notice required by the Code, the Articles of Incorporation, or these Bylaws, before or after the date and time of the matter to which the notice relates, by delivering to the Corporation a written waiver of notice signed by the shareholder entitled to the notice. In addition, a shareholder's attendance at a meeting shall be (a) a waiver of objection to lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (b) a waiver of objection to consideration of a particular matter at the meeting that is not within the purpose stated in the meeting notice, unless the shareholder objects to considering the matter when it is presented. Except as otherwise required by the Code, neither the purpose of nor the business transacted at the meeting need be specified in any waiver. 2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT. (a) Unless otherwise required by the Code or the Articles of Incorporation, all classes or series of the Corporation's shares entitled to vote generally on a matter shall for that purpose be considered a single voting group (a "Voting Group"). If either the Articles of Incorporation or the Code requires separate voting by two or more Voting Groups on a matter, action on that matter is taken only when voted upon -2- 7 each such Voting Group separately. At all meetings of shareholders, any Voting Group entitled to vote on a matter may take action on the matter only if a quorum of that Voting Group exists at the meeting, and if a quorum exists, the Voting Group may take action on the matter notwithstanding the absence of a quorum of any other Voting Group that may be entitled to vote separately on the matter. Unless the Articles of Incorporation, these Bylaws, or the Code provides otherwise, the presence (in person or by proxy) of shares representing a majority of votes entitled to be cast on a matter by a Voting Group shall constitute a quorum of that Voting Group with regard to that matter. Once a share is present at any meeting other than solely to object to holding the meeting or transacting business at the meeting, the share shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournments of that meeting, unless a new record date for the adjourned meeting is or must be set pursuant to Section 7.6 of these Bylaws. (b) Except as provided in Section 3.4, if a quorum exists, action on a matter by a Voting Group is approved by that Voting Group if the votes cast within the Voting Group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation, a provision of these Bylaws that has been adopted pursuant to Section 14-2-1021 of the Code (or any successor provision), or the Code requires a greater number of affirmative votes. 2.7 VOTING OF SHARES. Unless otherwise required by the Code or the Articles of Incorporation, each outstanding share of any class or series having voting rights shall be entitled to one vote on each matter that is submitted to a vote of shareholders. 2.8 PROXIES. A shareholder entitled to vote on a matter may vote in person or by proxy pursuant to an appointment executed in writing by the shareholder or by his or her attorney-in-fact. An appointment of a proxy shall be valid for 11 months from the date of its execution, unless a longer or shorter period is expressly stated in the proxy. 2.9 PRESIDING OFFICER. Except as otherwise provided in this Section 2.9, the Chairman of the Board, and in his or her absence or disability the Chief Executive Officer, and in his or her absence or disability the President, shall preside at every shareholders' meeting (and any adjournment thereof) as its chairman, if either of them is present and willing to serve. If neither the Chairman of the Board, nor the Chief Executive Officer nor the President is present and willing to serve as chairman of the meeting, and if the Chairman of the Board has not designated another person who is present and willing to serve, then a majority of the Corporation's directors present at the meeting shall be entitled to designate a person to serve as chairman. If no director of the Corporation is present at the meeting or if a majority of the directors who are present cannot be established, then a chairman of the meeting shall be selected by a majority vote of (a) the shares present at the meeting that would be entitled to vote in an election of directors, or (b) if no such shares are present at the meeting, then the shares present at the meeting comprising the Voting Group with the largest number of shares present at the meeting and entitled to vote on a matter properly proposed to be considered at the meeting. The chairman of the meeting may designate other persons to assist with the meeting. -3- 8 2.10 ADJOURNMENTS. At any meeting of shareholders (including an adjourned meeting), a majority of shares of any Voting Group present and entitled to vote at the meeting (whether or not those shares constitute a quorum) may adjourn the meeting, but only with respect to that Voting Group, to reconvene at a specific time and place. If more than one Voting Group is present and entitled to vote on a matter at the meeting, then the meeting may be continued with respect to any such Voting Group that does not vote to adjourn as provided above, and such Voting Group may proceed to vote on any matter to which it is otherwise entitled to do so; provided, however, that if (a) more than one Voting Group is required to take action on a matter at the meeting and (b) any one of those Voting Groups votes to adjourn the meeting (in accordance with the preceding sentence), then the action shall not be deemed to have been taken until the requisite vote of any adjourned Voting Group is obtained at its reconvened meeting. The only business that may be transacted at any reconvened meeting is business that could have been transacted at the meeting that was adjourned, unless further notice of the adjourned meeting has been given in compliance with the requirements for a special meeting that specifies the additional purpose or purposes for which the meeting is called. Nothing contained in this Section 2.10 shall be deemed or otherwise construed to limit any lawful authority of the chairman of a meeting to adjourn the meeting. 2.11 CONDUCT OF THE MEETING. At any meeting of shareholders, the chairman of the meeting shall be entitled to establish the rules of order governing the conduct of business at the meeting. 2.12 ACTION OF SHAREHOLDERS WITHOUT A MEETING. Action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if the action is taken by all shareholders entitled to vote on the action or, if permitted by the Articles of Incorporation, by persons who would be entitled to vote at a meeting shares having voting power to cast the requisite number of votes (or numbers, in the case of voting by groups) that would be necessary to authorize or take the action at a meeting at which all shareholders entitled to vote were present and voted. The action must be evidenced by one or more written consents describing the action taken, signed by shareholders entitled to take action without a meeting, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Where required by Section 14-2-704 or other applicable provision of the Code, the Corporation shall provide shareholders with written notice of actions taken without a meeting. 2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS. Notwithstanding anything to the contrary in these Bylaws, the only business that may be conducted at an annual meeting of shareholders shall be business brought before the meeting (a) by or at the direction of the Board of Directors prior to the meeting, (b) by or at the direction of the Chairman of the Board, the Chief Executive Officer or the President, or (c) by a shareholder of the Corporation who is entitled to vote with respect to the business and who complies with the notice procedures set forth in this Section 2.13. For business to be brought properly before an annual meeting by a shareholder, the shareholder must have given timely notice of the business in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered or mailed to and received at the principal offices of the Corporation, not less than 60 days before the date of the meeting at which the director(s) are to be elected or the proposal is to be considered; -4- 9 however, if less than 70 days notice or prior public disclosure of the date of the scheduled meeting is given or made, notice by the shareholder, to be timely, must be delivered or received not later than the close of business on the tenth day following the earlier of the day on which notice of the date of the meeting is mailed to shareholders or public disclosure of the date of such meeting is made. A shareholder's notice to the Secretary shall set forth a brief description of each matter of business the shareholder proposes to bring before the meeting and the reasons for conducting that business at the meeting; the name, as it appears on the Corporation's books, and address of the shareholder proposing the business; the series or class and number of shares of the Corporation's capital stock that are beneficially owned by the shareholder; and any material interest of the shareholder in the proposed business. The chairman of the meeting shall have the discretion to declare to the meeting that any business proposed by a shareholder to be considered at the meeting is out of order and that such business shall not be transacted at the meeting if (i) the chairman concludes that the matter has been proposed in a manner inconsistent with this Section 2.13 or (ii) the chairman concludes that the subject matter of the proposed business is inappropriate for consideration by the shareholders at the meeting. ARTICLE THREE BOARD OF DIRECTORS 3.1 GENERAL POWERS. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by, the Board of Directors, subject to any limitation set forth in the Articles of Incorporation, in bylaws approved by the shareholders, or in agreements among all the shareholders that are otherwise lawful. 3.2 NUMBER, ELECTION AND TERM OF OFFICE. The number of directors of the Corporation shall be fixed by resolution of the Board of Directors or of the shareholders from time to time and, until otherwise determined, shall be two (2); provided, however, that no decrease in the number of directors shall have the effect of shortening the term of an incumbent director. The terms of the Board of Directors shall be staggered as provided in the Articles of Incorporation. Despite the expiration of a director's term, he or she shall continue to serve until his or her successor, if there is to be any, has been elected and has qualified. Except as provided elsewhere in this Section 3.2 and in Section 3.4, the directors shall be elected at each annual meeting of shareholders, or at a special meeting of shareholders called for purposes that include the election of directors, by a plurality of the votes cast by the shares entitled to vote and present at the meeting. 3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any individual director may be removed, only for cause and only by the affirmative vote, at any annual or special meeting of the shareholders, of not less than 66 2/3% of the total number of votes of then outstanding shares of capital stock of the Company that are entitled to vote generally in the election of directors, voting together as a single class, but only if notice of such proposed removal was contained in the notice of such meeting. "For cause" means (i) misconduct as a director of the Corporation or any subsidiary of the Corporation which involves dishonesty with -5- 10 respect to a material corporate activity or material corporate assets, or (ii) conviction of an offense punishable by one or more years of imprisonment (other than minor regulatory infractions and traffic violations which do not materially and adversely affect the Company). A removed director's successor, if any, may be elected at the same meeting to serve the unexpired term. 3.4 VACANCIES. A vacancy occurring in the Board of Directors may be filled for the unexpired term, unless the shareholders have elected a successor, by the affirmative vote of a majority of the remaining directors, whether or not the remaining directors constitute a quorum; provided, however, that if the vacant office was held by a director elected by a particular Voting Group, only the holders of shares of that Voting Group or the remaining directors elected by that Voting Group shall be entitled to fill the vacancy; provided further, however, that if the vacant office was held by a director elected by a particular Voting Group and there is no remaining director elected by that Voting Group, the other remaining directors or director (elected by another Voting Group or Groups) may fill the vacancy during an interim period before the shareholders of the vacated director's Voting Group act to fill the vacancy. A vacancy or vacancies in the Board of Directors may result from the death, resignation, disqualification, or removal of any director, or from an increase in the number of directors. 3.5 COMPENSATION. Directors may receive such compensation for their services as directors as may be fixed by the Board of Directors from time to time. A director may also serve the Corporation in one or more capacities other than that of director and receive compensation for services rendered in those other capacities. 3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may designate from among its members an executive committee or one or more other standing or ad hoc committees, each consisting of one or more directors, who serve at the pleasure of the Board of Directors. Subject to the limitations imposed by the Code, each committee shall have the authority set forth in the resolution establishing the committee or in any other resolution of the Board of Directors specifying, enlarging, or limiting the authority of the committee. 3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a director of the Corporation shall assume office and begin serving unless and until duly qualified to serve, as determined by reference to the Code, the Articles of Incorporation, and any further eligibility requirements established in these Bylaws. 3.8 CERTAIN NOMINATION REQUIREMENTS. No person may be nominated for election as a director at any annual or special meeting of shareholders unless (a) the nomination has been or is being made pursuant to a recommendation or approval of the Board of Directors of the Corporation or a properly constituted committee of the Board of Directors previously delegated authority to recommend or approve nominees for director; (b) the person is nominated by a shareholder of the Corporation who is entitled to vote for the election of the nominee at the subject meeting, and the nominating shareholder has furnished written notice to the Secretary of the Corporation, at the Corporation's principal office, not less than 60 days before the date of the meeting at which the director(s) are to be elected or the proposal is to be considered; however, if -6- 11 less than 70 days notice or prior public disclosure of the date of the scheduled meeting is given or made, notice by the shareholder, to be timely, must be delivered or received not later than the close of business on the tenth day following the earlier of the day on which notice of the date of the meeting is mailed to shareholders or public disclosure of the date of such meeting is made and the notice (i) sets forth with respect to the person to be nominated his or her name, age, business and residence addresses, principal business or occupation during the past five years, any affiliation with or material interest in the Corporation or any transaction involving the Corporation, and any affiliation with or material interest in any person or entity having an interest materially adverse to the Corporation, and (ii) is accompanied by the sworn or certified statement of the shareholder that the nominee has consented to being nominated and that the shareholder believes the nominee will stand for election and will serve if elected; or (c) (i) the person is nominated to replace a person previously identified as a proposed nominee (in accordance with the provisions of subpart (b) of this Section 3.8) who has since become unable or unwilling to be nominated or to serve if elected, (ii) the shareholder who furnished such previous identification makes the replacement nomination and delivers to the Secretary of the Corporation (at the time of or prior to making the replacement nomination) an affidavit or other sworn statement affirming that the shareholder had no reason to believe the original nominee would be so unable or unwilling, and (iii) such shareholder also furnishes in writing to the Secretary of the Corporation (at the time of or prior to making the replacement nomination) the same type of information about the replacement nominee as required by subpart (b) of this Section 3.8 to have been furnished about the original nominee. The chairman of any meeting of shareholders at which one or more directors are to be elected, for good cause shown and with proper regard for the orderly conduct of business at the meeting, may waive in whole or in part the operation of this Section 3.8. ARTICLE FOUR MEETINGS OF THE BOARD OF DIRECTORS 4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held in conjunction with each annual meeting of shareholders. In addition, the Board of Directors may, by prior resolution, hold regular meetings at other times. 4.2 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Chief Executive Officer, the President, or any director in office at that time. 4.3 PLACE OF MEETINGS. Directors may hold their meetings at any place in or outside the State of Georgia that the Board of Directors may establish from time to time. 4.4 NOTICE OF MEETINGS. Directors need not be provided with notice of any regular meeting of the Board of Directors. Unless waived in accordance with Section 4.10, the Corporation shall give at least two days' notice to each director of the date, time, and place of each special meeting. Notice of a meeting shall be deemed to have been given to any director in -7- 12 attendance at any prior meeting at which the date, time, and place of the subsequent meeting was announced. 4.5 QUORUM At meetings of the Board of Directors, the greater of (a) a majority of the directors then in office, or (b) one-third of the number of directors fixed in accordance with these Bylaws shall constitute a quorum for the transaction of business. 4.6 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote is taken, the vote of a majority of the directors present at the time of the vote will be the act of the Board of Directors, unless the vote of a greater number is required by the Code, the Articles of Incorporation, or these Bylaws. A director who is present at a meeting of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (a) he or she objects at the beginning of the meeting (or promptly upon his or her arrival) to holding the meeting or transacting business at it; (b) his or her dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) he or she delivers written notice of dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. 4.7 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of Directors may participate in a meeting of the Board by means of conference telephone or similar communications equipment through which all persons participating may hear and speak to each other. Participation in a meeting pursuant to this Section 4.7 shall constitute presence in person at the meeting. 4.8 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent, describing the action taken, is signed by each director and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. The consent may be executed in counterpart, and shall have the same force and effect as a unanimous vote of the Board of Directors at a duly convened meeting. 4.9 ADJOURNMENTS. A meeting of the Board of Directors, whether or not a quorum is present, may be adjourned by a majority of the directors present to reconvene at a specific time and place. It shall not be necessary to give notice to the directors of the reconvened meeting or of the business to be transacted, other than by announcement at the meeting that was adjourned, unless a quorum was not present at the meeting that was adjourned, in which case notice shall be given to directors in the same manner as for a special meeting. At any such reconvened meeting at which a quorum is present, any business may be transacted that could have been transacted at the meeting that was adjourned. 4.10 WAIVER OF NOTICE. A director may waive any notice required by the Code, the Articles of Incorporation, or these Bylaws before or after the date and time of the matter to which the notice relates, by a written waiver signed by the director and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Attendance by a director at a -8- 13 meeting shall constitute waiver of notice of the meeting, except where a director at the beginning of the meeting (or promptly upon his or her arrival) objects to holding the meeting or to transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. ARTICLE FIVE OFFICERS 5.1 OFFICES. The officers of the Corporation shall consist of a President, a Secretary, and a Treasurer, and may include a Chief Executive Officer separate from the President, each of whom shall be elected or appointed by the Board of Directors. The Board of Directors may also elect a Chairman of the Board from among its members. The Board of Directors from time to time may, or may authorize the Chief Executive Officer to, create and establish the duties of other offices and may, or may authorize the Chief Executive Officer to, elect or appoint, or authorize specific senior officers to appoint, the persons who shall hold such other offices, including one or more Vice Presidents (including Executive Vice Presidents, Senior Vice Presidents, Assistant Vice Presidents, and the like), one or more Assistant Secretaries, and one or more Assistant Treasurers. Whether or not so provided by the Board of Directors, the Chairman of the Board or the Chief Executive Officer may appoint one or more Assistant Secretaries, and one or more Assistant Treasurers. Any two or more offices may be held by the same person. 5.2 TERM. Each officer shall serve at the pleasure of the Board of Directors (or, if appointed by the Chief Executive Officer or a senior officer pursuant to this Article Five, at the pleasure of the Board of Directors, the Chief Executive Officer, or the senior officer authorized to have appointed the officer) until his or her death, resignation, or removal, or until his or her replacement is elected or appointed in accordance with this Article Five. 5.3 COMPENSATION. The compensation of all officers of the Corporation shall be fixed by the Board of Directors or by a committee or officer appointed by the Board of Directors. Officers may serve without compensation. 5.4 REMOVAL. All officers (regardless of how elected or appointed) may be removed, with or without cause, by the Board of Directors, and any officer appointed by the Chief Executive Officer or another senior officer may also be removed, with or without cause, by the Chief Executive Officer or by any senior officer authorized to have appointed the officer to be removed. Removal will be without prejudice to the contract rights, if any, of the person removed, but shall be effective notwithstanding any damage claim that may result from infringement of such contract rights. 5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be one) shall preside at and serve as chairman of meetings of the shareholders and of the Board of Directors (unless another person is selected under Section 2.9 to act as chairman). The Chairman of the -9- 14 Board shall perform other duties and have other authority as may from time to time be delegated by the Board of Directors. 5.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be charged with the general and active management of the Corporation, shall see that all orders and resolutions of the Board of Directors are carried into effect, shall have the authority to select and appoint employees and agents of the Corporation, and shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board. The Chief Executive Officer shall perform any other duties and have any other authority as may be delegated from time to time by the Board of Directors, and shall be subject to the limitations fixed from time to time by the Board of Directors. 5.7 PRESIDENT. If there shall be no separate Chief Executive Officer of the Corporation, then the President shall be the chief executive officer of the Corporation and shall have all the duties and authority given under these Bylaws to the Chief Executive Officer. The President shall otherwise be the chief operating officer of the Corporation and shall, subject to the authority of the Chief Executive Officer, have responsibility for the conduct and general supervision of the business operations of the Corporation. The President shall perform such other duties and have such other authority as may from time to time be delegated by the Board of Directors or the Chief Executive Officer. In the absence or disability of the Chief Executive Officer, the President shall perform the duties and exercise the powers of the Chief Executive Officer. 5.8 VICE PRESIDENTS. The Vice President (if there be one) shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, whether the duties and powers are specified in these Bylaws or otherwise. If the Corporation has more than one Vice President, the one designated by the Board of Directors or the Chief Executive Officer (in that order of precedence) shall act in the event of the absence or disability of the President. Vice Presidents shall perform any other duties and have any other authority as from time to time may be delegated by the Board of Directors, the Chief Executive Officer, or the President. 5.9 SECRETARY. The Secretary shall be responsible for preparing minutes of the meetings of shareholders, directors, and committees of directors and for authenticating records of the Corporation. The Secretary or any Assistant Secretary shall have authority to give all notices required by law or these Bylaws. The Secretary shall be responsible for the custody of the corporate books, records, contracts, and other documents. The Secretary or any Assistant Secretary may affix the corporate seal to any lawfully executed documents requiring it, may attest to the signature of any officer of the Corporation, and shall sign any instrument that requires the Secretary's signature. The Secretary or any Assistant Secretary shall perform any other duties and have any other authority as from time to time may be delegated by the Board of Directors, the Chief Executive Officer, or the President. 5.10 TREASURER. Unless otherwise provided by the Board of Directors, the Treasurer shall be responsible for the custody of all funds and securities belonging to the Corporation and -10- 15 for the receipt, deposit, or disbursement of these funds and securities under the direction of the Board of Directors. The Treasurer shall cause full and true accounts of all receipts and disbursements to be maintained and shall make reports of these receipts and disbursements to the Board of Directors, the Chief Executive Officer and President upon request. The Treasurer or Assistant Treasurer shall perform any other duties and have any other authority as from time to time may be delegated by the Board of Directors, the Chief Executive Officer, or the President. ARTICLE SIX DISTRIBUTIONS AND DIVIDENDS Unless the Articles of Incorporation provide otherwise, the Board of Directors, from time to time in its discretion, may authorize or declare distributions or share dividends in accordance with the Code. ARTICLE SEVEN SHARES 7.1 SHARE CERTIFICATES. The interest of each shareholder in the Corporation shall be evidenced by a certificate or certificates representing shares of the Corporation, which shall be in such form as the Board of Directors from time to time may adopt in accordance with the Code. Share certificates shall be in registered form and shall indicate the date of issue, the name of the Corporation, that the Corporation is organized under the laws of the State of Georgia, the name of the shareholder, and the number and class of shares and designation of the series, if any, represented by the certificate. Each certificate shall be signed by the President or a Vice President (or in lieu thereof, by the Chairman of the Board or Chief Executive Officer, if there be one) and may be signed by the Secretary or an Assistant Secretary; provided, however, that where the certificate is signed (either manually or by facsimile) by a transfer agent, or registered by a registrar, the signatures of those officers may be facsimiles. 7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior to due presentation for transfer of registration of its shares, the Corporation may treat the registered owner of the shares (or the beneficial owner of the shares to the extent of any rights granted by a nominee certificate on file with the Corporation pursuant to any procedure that may be established by the Corporation in accordance with the Code) as the person exclusively entitled to vote the shares, to receive any dividend or other distribution with respect to the shares, and for all other purposes; and the Corporation shall not be bound to recognize any equitable or other claim to or interest in the shares on the part of any other person, whether or not it has express or other notice of such a claim or interest, except as otherwise provided by law. 7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon the books of the Corporation kept by the Corporation or by the transfer agent designated to transfer the shares, -11- 16 only upon direction of the person named in the certificate or by an attorney lawfully constituted in writing. Before a new certificate is issued, the old certificate shall be surrendered for cancellation or, in the case of a certificate alleged to have been lost, stolen, or destroyed, the provisions of Section 7.5 of these Bylaws shall have been complied with. 7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of the provisions of Section 7.3 of these Bylaws, the Corporation is under a duty to register the transfer of its shares only if: (a) the share certificate is endorsed by the appropriate person or persons; (b) reasonable assurance is given that each required endorsement is genuine and effective; (c) the Corporation has no duty to inquire into adverse claims or has discharged any such duty; (d) any applicable law relating to the collection of taxes has been complied with; (e) the transfer is in fact rightful or is to a bona fide purchaser; and (f) the transfer is in compliance with applicable provisions of any transfer restrictions of which the Corporation shall have notice. 7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a share certificate to be lost, stolen, or destroyed shall make an affidavit or affirmation of this claim in such a manner as the Corporation may require and shall, if the Corporation requires, give the Corporation a bond of indemnity in form and amount, and with one or more sureties satisfactory to the Corporation, as the Corporation may require, whereupon an appropriate new certificate may be issued in lieu of the one alleged to have been lost, stolen or destroyed. 7.6 FIXING OF RECORD DATE. For the purpose of determining shareholders (a) entitled to notice of or to vote at any meeting of shareholders or, if necessary, any adjournment thereof, (b) entitled to receive payment of any distribution or dividend, or (c) for any other proper purpose, the Board of Directors may fix in advance a date as the record date. The record date may not be more than 70 days (and, in the case of a notice to shareholders of a shareholders' meeting, not less than 10 days) prior to the date on which the particular action, requiring the determination of shareholders, is to be taken. A separate record date may be established for each Voting Group entitled to vote separately on a matter at a meeting. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting, unless the Board of Directors shall fix a new record date for the reconvened meeting, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as provided in Section 7.6, then the record date for any determination of shareholders that may be proper or required by law shall be, as appropriate, the date on which notice of a shareholders' meeting is mailed, the date on which the Board of Directors adopts a resolution declaring a dividend or authorizing a distribution, or the date on which any other action is taken that requires a determination of shareholders. -12- 17 ARTICLE EIGHT INDEMNIFICATION 8.1 INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify and hold harmless any director of the Corporation (an "Indemnified Person") who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, whether formal or informal, including any action or suit by or in the right of the Corporation (for purposes of this Article Eight, collectively, a "Proceeding") because he or she is or was a director, officer, employee, or agent of the Corporation, against any judgment, settlement, penalty, fine, or reasonable expenses (including, but not limited to, attorneys' fees and disbursements, court costs, and expert witness fees) incurred with respect to the Proceeding (for purposes of this Article Eight, a "Liability"), provided, however, that no indemnification shall be made for: (a) any appropriation by a director, in violation of the director's duties, of any business opportunity of the corporation; (b) any acts or omissions of a director that involve intentional misconduct or a knowing violation of law; (c) the types of liability set forth in Code Section 14-2-832; or (d) any transaction from which the director received an improper personal benefit. 8.2 INDEMNIFICATION OF OTHERS. The Board of Directors shall have the power to cause the Corporation to provide to officers, employees, and agents of the Corporation all or any part of the right to indemnification permitted for such persons by appropriate provisions of the Code. Persons to be indemnified may be identified by position or name, and the right of indemnification may be different for each of the persons identified. Each officer, employee, or agent of the Corporation so identified shall be an "Indemnified Person" for purposes of the provisions of this Article Eight. 8.3 OTHER ORGANIZATIONS. The Corporation shall provide to each director, and the Board of Directors shall have the power to cause the Corporation to provide to any officer, employee, or agent, of the Corporation who is or was serving at the Corporation's request as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise all or any part of the right to indemnification and other rights of the type provided under Sections 8.1, 8.2, 8.4, and 8.10 of this Article Eight (subject to the conditions, limitations, and obligations specified in those Sections) permitted for such persons by appropriate provisions of the Code. Persons to be indemnified may be identified by position or name, and the right of indemnification may be different for each of the persons identified. Each person so identified shall be an "Indemnified Person" for purposes of the provisions of this Article Eight. 8.4 ADVANCES. Expenses (including, but not limited to, attorneys' fees and disbursements, court costs, and expert witness fees) incurred by an Indemnified Person in defending any Proceeding of the kind described in Sections 8.1 or 8.3, as to an Indemnified Person who is a director of the Corporation, or in Sections 8.2 or 8.3, as to other Indemnified Persons, if the Board of Directors has specified that advancement of expenses be made available to any such Indemnified Person, shall be paid by the Corporation in advance of the final disposition of such Proceeding as set forth herein. The Corporation shall promptly pay the amount of such expenses to the Indemnified Person, but in no event later than 10 days following the Indemnified Person's delivery to the Corporation of a written request for an advance pursuant -13- 18 to this Section 8.4, together with a reasonable accounting of such expenses; provided, however, that the Indemnified Person shall furnish the Corporation a written affirmation of his or her good faith belief that he or she has met the applicable standard of conduct and a written undertaking and agreement to repay to the Corporation any advances made pursuant to this Section 8.4 if it shall be determined that the Indemnified Person is not entitled to be indemnified by the Corporation for such amounts. The Corporation may make the advances contemplated by this Section 8.4 regardless of the Indemnified Person's financial ability to make repayment. Any advances and undertakings to repay pursuant to this Section 8.4 may be unsecured and interest-free. 8.5 NON-EXCLUSIVITY. Subject to any applicable limitation imposed by the Code or the Articles of Incorporation, the indemnification and advancement of expenses provided by or granted pursuant to this Article Eight shall not be exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any provision of the Articles of Incorporation, or any Bylaw, resolution, or agreement specifically or in general terms approved or ratified by the affirmative vote of holders of a majority of the shares entitled to be voted thereon. 8.6 INSURANCE. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or who, while serving in such a capacity, is also or was also serving at the request of the Corporation as a director, officer, trustee, partner, employee, or agent of any corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against any Liability that may be asserted against or incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article Eight. 8.7 NOTICE. If the Corporation indemnifies or advances expenses to a director under any of Sections 14-2-851 through 14-2-854 of the Code in connection with a Proceeding by or in the right of the Corporation, the Corporation shall, to the extent required by Section 14-2-1621 or any other applicable provision of the Code, report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. 8.8 SECURITY. The Corporation may designate certain of its assets as collateral, provide self-insurance, establish one or more indemnification trusts, or otherwise secure or facilitate its ability to meet its obligations under this Article Eight, or under any indemnification agreement or plan of indemnification adopted and entered into in accordance with the provisions of this Article Eight, as the Board of Directors deems appropriate. 8.9 AMENDMENT. Any amendment to this Article Eight that limits or otherwise adversely affects the right of indemnification, advancement of expenses, or other rights of any Indemnified Person hereunder shall, as to such Indemnified Person, apply only to Proceedings based on actions, events, or -14- 19 omissions (collectively, "Post Amendment Events") occurring after such amendment and after delivery of notice of such amendment to the Indemnified Person so affected. Any Indemnified Person shall, as to any Proceeding based on actions, events, or omissions occurring prior to the date of receipt of such notice, be entitled to the right of indemnification, advancement of expenses, and other rights under this Article Eight to the same extent as if such provisions had continued as part of the Bylaws of the Corporation without such amendment. This Section 8.9 cannot be altered, amended, or repealed in a manner effective as to any Indemnified Person (except as to Post Amendment Events) without the prior written consent of such Indemnified Person. 8.10 AGREEMENTS. The provisions of this Article Eight shall be deemed to constitute an agreement between the Corporation and each Indemnified Person hereunder. In addition to the rights provided in this Article Eight, the Corporation shall have the power, upon authorization by the Board of Directors, to enter into an agreement or agreements providing to any Indemnified Person indemnification rights substantially similar to those provided in this Article Eight. 8.11 CONTINUING BENEFITS. The rights of indemnification and advancement of expenses permitted or authorized by this Article Eight shall, unless otherwise provided when such rights are granted or conferred, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person. 8.12 SUCCESSORS. For purposes of this Article Eight, the term "Corporation" shall include any corporation, joint venture, trust, partnership, or unincorporated business association that is the successor to all or substantially all of the business or assets of this Corporation, as a result of merger, consolidation, sale, liquidation, or otherwise, and any such successor shall be liable to the persons indemnified under this Article Eight on the same terms and conditions and to the same extent as this Corporation. 8.13 SEVERABILITY. Each of the Sections of this Article Eight, and each of the clauses set forth herein, shall be deemed separate and independent, and should any part of any such Section or clause be declared invalid or unenforceable by any court of competent jurisdiction, such invalidity or unenforceability shall in no way render invalid or unenforceable any other part thereof or any separate Section or clause of this Article Eight that is not declared invalid or unenforceable. 8.14 ADDITIONAL INDEMNIFICATION. In addition to the specific indemnification rights set forth herein, the Corporation shall indemnify each of its directors and such of its officers as have been designated by the Board of Directors to the full extent permitted by action of the Board of Directors without shareholder approval under the Code or other laws of the State of Georgia as in effect from time to time. -15- 20 ARTICLE NINE MISCELLANEOUS 9.1 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall have the power to determine which accounts, books, and records of the Corporation shall be available for shareholders to inspect or copy, except for those books and records required by the Code to be made available upon compliance by a shareholder with applicable requirements, and shall have the power to fix reasonable rules and regulations (including confidentiality restrictions and procedures) not in conflict with applicable law for the inspection and copying of accounts, books, and records that by law or by determination of the Board of Directors are made available. Unless required by the Code or otherwise provided by the Board of Directors, a shareholder of the Corporation holding less than two percent of the total shares of the Corporation then outstanding shall have no right to inspect the books and records of the Corporation. 9.2 FISCAL YEAR. The Board of Directors is authorized to fix the fiscal year of the Corporation and to change the fiscal year from time to time as it deems appropriate. 9.3 CORPORATE SEAL. The corporate seal will be in such form as the Board of Directors may from time to time determine. The Board of Directors may authorize the use of one or more facsimile forms of the corporate seal. The corporate seal need not be used unless its use is required by law, by these Bylaws, or by the Articles of Incorporation. 9.4 ANNUAL STATEMENTS. Not later than four months after the close of each fiscal year, and in any case prior to the next annual meeting of shareholders, the Corporation shall prepare (a) a balance sheet showing in reasonable detail the financial condition of the Corporation as of the close of its fiscal year, and (b) a profit and loss statement showing the results of its operations during its fiscal year. Upon receipt of written request, the Corporation promptly shall mail to any shareholder of record a copy of the most recent such balance sheet and profit and loss statement, in such form and with such information as the Code may require. 9.5 NOTICE. (a) Whenever these Bylaws require notice to be given to any shareholder or to any director, the notice may be given by mail, in person, by courier delivery, by telephone, or by telecopier, telegraph, or similar electronic means. Whenever notice is given to a shareholder or director by mail, the notice shall be sent by depositing the notice in a post office or letter box in a postage-prepaid, sealed envelope addressed to the shareholder or director at his or her address as it appears on the books of the Corporation. Any such written notice given by mail shall be effective: (i) if given to shareholders, at the time the same is deposited in the United States mail; and (ii) in all other cases, at the earliest of (x) when received or when delivered, properly addressed, to the addressee's last known principal place of business or residence, (y) five days after its deposit in the mail, as evidenced by the postmark, if mailed with first-class postage prepaid and correctly addressed, or (z) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. Whenever notice is given to a shareholder or director by any means other than mail, the notice shall be deemed given when received. (b) In calculating time periods for notice, when a period of time measured in days, weeks, months, years, or other measurement of time is prescribed for the exercise of any -16- 21 privilege or the discharge of any duty, the first day shall not be counted but the last day shall be counted. 9.6 ELECTION OF "FAIR PRICE" STATUTE. The provisions of Sections 14-2-1110 through 14-2-1113 of the Code, as they may be amended from time to time, shall apply to the Corporation, to the extent permitted. 9.7 ELECTION OF "BUSINESS COMBINATION" STATUTE. The provisions of Section 14-2-1131 through 14-2-1133 of the Code, as they may be amended from time to time, shall apply to the Corporation, to the extent permitted. ARTICLE TEN AMENDMENTS Except as otherwise provided below or under the Code, the Board of Directors shall have the power to alter, amend, or repeal these Bylaws or adopt new Bylaws. Notwithstanding any other provision of these Bylaws, the Corporation's Articles of Incorporation or law, neither Section 2.3, 2.13, 3.3 or 3.8, nor Article Eight hereof nor this Article Ten may be amended or repealed except upon the affirmative vote of holders of at least 66 2/3% of the total number of votes of the then outstanding shares of capital stock of the Company that are entitled to vote generally in the election of directors, voting together as a single class. Any Bylaws adopted by the Board of Directors may be altered, amended, or repealed, and new Bylaws adopted, by the shareholders. The shareholders may prescribe in adopting any Bylaw or Bylaws that the Bylaw or Bylaws so adopted shall not be altered, amended, or repealed by the Board of Directors. Dated: ______________ __, 1997. -17- EX-4.2 6 SPECIMEN STOCK CERTIFICATE 1 EXHIBIT 4.2 NUMBER SHARES MELITA INTERNATIONAL CORPORATION (Incorporated under the laws of the State of Georgia) Authorized to Issue 100,000,000 shares of Common Stock, No Par Value This certifies that____________[Specimen]____________is the registered holder of ______________________________________shares of the authorized common stock of Melita International Corporation which are fully paid and non-assessable and which are transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal to be hereunto affixed this ____ day of ___________ A.D., 19__ - ------------------------- ------------------------- Secretary President EX-10.1 7 LEASE AGREEMENT 1 EXHIBIT 10.1 LEASE THIS LEASE, made this _____ day of August, 1994, between TECHNOLOGY PARK/ATLANTA, INC., a Georgia corporation having an office at 40 Technology Parkway, Suite 300, Norcross, Georgia 30092 (herein called "Lessor"), and MELITA INTERNATIONAL CORPORATION, a Georgia corporation having an office at 6630 Bay Circle, Norcross, Georgia 30071 (herein called "Lessee"); WITNESSETH: That, WHEREAS, Lessor is the owner of that certain tract of land containing approximately 6.9 acres and described on Exhibit "A", attached hereto and by this reference incorporated herein and made a part hereof (herein called the "Land) on which Lessor proposes to construct a building as hereinafter provided (herein called the "Building"); and WHEREAS, Lessee wishes to lease from Lessor the Land and Building (herein collectively called the "Premises") and Lessor wishes to lease to Lessee the Premises, on the terms and conditions hereinafter provided; NOW, THEREFORE, in consideration of the payment of the rent and the keeping and performance of the covenants and agreements by Lessee as hereinafter set forth, Lessor does hereby lease to Lessee, and Lessee does hereby lease from Lessor, the Premises. Lessee hereby acknowledges that except as expressly provided herein Lessor has not made any representation or warranty as to the suitability of the Premises for the conduct of Lessee's business. No easement for light or air is included in the Premises. FOR AND IN CONSIDERATION of the leasing of the Premises as aforesaid, the parties hereby covenant and agree as follows: 1. TERM. The term (herein called the "Lease Term") of this Lease shall commence on the earlier of (herein called the "Commencement Date "): (i) the date on which Lessee occupies the Building with Lessor's consent or (ii) the later of April 1, 1995 or the date on which the Building is "substantially complete" (as hereinafter defined); and unless sooner terminated pursuant to the provisions hereof the Lease Term shall terminate at 11:59 p.m. on the date (herein called the "Expiration Date") next preceding the date that is ten (10) years, six (6) months after the Commencement Date. After the Commencement Date and on the request of either Lessor or Lessee, Lessor and Lessee shall execute a written agreement setting forth the Commencement Date and the Expiration Date. Lessor covenants to and with Lessee that so long as Lessee pays Annual Base Rental and Base Rent (each as hereinafter defined), Lessee shall have the peaceable and quiet enjoyment to the possession of the Premises, subject, however, to the terms of this Lease. 2 2. RENT. 2.1 The annual base rental (herein called "Annual Base Rental") for the Premises shall be as follows for each respective Lease Year (as hereinafter defined) and shall be payable in equal monthly installments (herein called "Base Rent") payable in advance on the first day of each and every calendar month during the Lease Term commencing on the date that is six (6) months after the Commencement Date (herein called the "Rental Commencement Date"): Lease Year 1 Annual Base Rental of $542,599.20 Base Rent per month of $45,216.60 Lease Year 2 Annual Base Rental of $542,599.20 Base Rent per month of $45,216.60 Lease Year 3 Annual Base Rental of $553,451.18 Base Rent per month of $46,120.93 Lease Year 4 Annual Base Rental of $564,520.21 Base Rent per month of $47,043.35 Lease Year 5 Annual Base Rental of $575,810.61 Base Rent per month of $47,984.22 Lease Year 6 Annual Base Rental of $587,326.82 Base Rent per month of $48,943.90 Lease Year 7 Annual Base Rental of $599,073.36 Base Rent per month of $49,922.78 Lease Year 8 Annual Base Rental of $611,054.83 Base Rent per month of $50,921.24 Lease Year 9 Annual Base Rental of $623,275.92 Base Rent per month of $51,939.66 Lease Year 10 Annual Base Rental of $635,741.44 Base Rent per month of $52,978.45 As used in this Section 2.1, the term "Lease Year" shall mean a period of time, and the first Lease Year shall commence on the first day of the calendar month following the Rental Commencement Date (herein called the "Lease Year 1 Commencement") (unless the Rental Commencement Date is the first day of a calendar month in which case the Rental Commencement Date shall be the Lease Year 1 Commencement) and shall end on the last day of the calendar month preceding the calendar month in which the first anniversary of the Lease Year 1 Commencement occurs. During the period of the Rental Commencement Date until Lease -2- 3 Year 1 Commencement, Lessee shall pay Base Rent at the same rate as Lease Year 1. Each succeeding Lease Year shall commence on the day immediately following the last day of the immediately preceding Lease Year and shall end on the day that is the anniversary of the date on which the previous Lease Year ended. Base Rent shall be prorated at the rate of 1/30th of the Base Rent for any partial month. 2.2 Lessee shall pay the Base Rent and any other amounts payable by Lessee to Lessor under the terms hereof (herein collectively called the "Amounts Due") promptly at the times and in the manner herein specified without deduction, setoff, abatement, counterclaim, or defense except as expressly set forth herein. If any installment of Base Rent is not received by Lessor on or before the date that is five (5) days after the date on which it is due, Lessee shall pay Lessor interest on such Base Rent from the date on which it was due until the date it is actually paid at a rate per annum equal to the lesser of (i) the prime rate of interest announced by Wachovia Bank of Georgia, N.A., or its successors, plus five percent (5%) or (ii) the maximum rate permitted by applicable law. The interest shall be due and payable at the time of actual payment of the Base Rent. Any Base Rent payable to Lessor by Lessee shall be paid in cash or by check at the office of Lessor, Suite 300, 40 Technology Park, Norcross, Georgia 30092, or at such other place or places as Lessor may from time to time designate in writing. 2.3 The Annual Base Rental amounts set forth in Section 2.1 hereof are based upon Lessor's architect's calculation of 100,965 square feet of space in the Premises (herein called the "Calculation") as calculated in accordance with the Building Owners and Managers Association (herein called "BOMA") industry standards where an entire building is leased to a single tenant. Lessee shall have the right to object to the Calculation by delivering written notice to Lessor within ten (10) days after the Commencement Date, failing which Lessee shall be deemed to have agreed the Calculation is correct. If Lessee objects to the Calculation within said ten (10) day period, Lessor and Lessee shall work together to confirm and adjust the actual square feet in the Premises, and after the square feet of the Premises has finally been determined, Lessor and Lessee shall execute a certificate stipulating and agreeing to the same. If the square footage so determined is less than 100,965 then the Annual Base Rental shall be reduced accordingly. The square feet of the Premises and the Annual Base Rental as so agreed to between Lessor and Lessee shall replace the square footage of area of the Premises and the Annual Base Rental set forth above and shall be deemed to be the net area of the Premises and the Annual Base Rental for all purposes under this Lease. All payments of Annual Base Rental and all other payments of rent and other sums of money required of Lessee herein shall be made as and when required herein, notwithstanding any unresolved objections to the Calculation. All such payments shall be based upon the Calculation prepared by Lessor's architect until such objections have been finally resolved, whereupon any overpayment theretofore made shall be adjusted by reducing the next installment of Base Rent coming due. 3. FINANCIAL STATEMENTS. Upon request by Lessor, Lessee shall provide Lessor with copies of its audited annual financial statements, prepared in accordance with generally accepted accounting principles and which shall demonstrate that Lessee is financially able to satisfy its obligations hereunder. Lessor shall not deliver such financial statements of Lessee to -3- 4 any third party without first obtaining a confidentiality agreement reasonably acceptable to Lessee from such third party. 4. USE: OPERATION. 4.1 Lessee shall use the Premises only for office, research, development and for product assembly, storage and distribution, and for no other purpose without the prior written consent of Lessor. Lessee shall operate its business in the Premises during the entire Lease Term and in compliance with all applicable laws, ordinances, regulations, covenants, restrictions, and other matters shown on the public records, now in force and all applicable laws, ordinances and regulations hereafter enacted; provided, however, that Lessee shall not be required to comply with any amendments hereinafter made to the Protective Covenants (as hereinafter defined) or any other restrictive covenants existing as of the date hereof and encumbering the Premises if such amendments impose a greater restriction on the use or development of the Premises. Lessee will not permit, create, or maintain any disorderly conduct, trespass, noise, or nuisance whatsoever about the Premises which has a tendency to annoy or disturb any persons occupying adjacent premises. 4.2 Lessee shall cause all loading and unloading of any goods or materials delivered to or sent from the Premises to be done only at the loading dock area of the Building or such other dock area as Lessor may designate; provided that packages and other goods the delivery of which to other entrances will not harm or otherwise damage the paint, finish or any other aspect of the Building may be delivered to any door of the Building. Lessee hereby agrees to remove within five (5) days of receiving notice from Lessor any goods or materials delivered to or sent from the Premises stored on, accumulated on or obstructing the loading dock area, trash bay, sidewalks, driveways, parking areas, or entrances of the Building. 4.3 Lessee shall not perform or permit any work to be done on the loading dock (on the exterior of the Building), sidewalks, driveways, parking areas, or landscaped areas of the Premises without obtaining the prior written consent of Lessor, which shall not be unreasonably withheld. 4.4 Lessee shall not use, handle, store, deal in, discharge, or fabricate in violation of any local, state, or federal environmental protection legislation or regulation any environmentally hazardous wastes or materials as the same are now or hereafter may be defined or classified by any local, state, or federal environmental protection legislation or regulation issued pursuant thereto. 5. NET LEASE: MANAGEMENT FEE. This Lease shall be a completely net lease and Lessee shall pay to Lessor, net throughout the Lease Term, the Annual Base Rental and other Amounts Due, free of any offset, abatement or other deduction whatsoever and without notice except as allowed pursuant to the express terms of this Lease. Lessor shall not be required to make any payment of any kind whatsoever with respect to the Premises, except as may be expressly set forth herein. Additionally, Lessee shall pay Lessor a monthly management fee -4- 5 equal to one percent (1.0%) of Lessee's then applicable Base Rent, which shall be paid by Lessee in the same manner and at the same time as Base Rent. 6. UTILITIES AND SERVICES. 6.1 Lessee shall pay during the Lease Term the costs of all utilities furnished to the Premises, including, without limitation, water, gas, electricity, sewer and refuse disposal to the extent required by Lessee or applicable law. Lessor warrants that such utilities are available to the Premises over public rights of way or valid private easements and will be available for Lessee's use on the Commencement Date to the extent necessary for Lessee to operate the Premises in accordance with Section 4 hereof without requirement by Lessee to pay any hook-up charges and upon payment of only normal and customary usage charges. Lessee shall be solely responsible for the payment of all telephone and cable charges incurred by Lessee, including, without limitation, the cost of installation at the Premises of all telephone and cable equipment which shall be installed at the request of Lessee. The furnishing of and cost of janitorial services for the Premises shall be the sole responsibility of Lessee. 6.2 Lessor shall not be held liable for any damage or injury suffered by Lessee, resulting directly, indirectly, approximately or remotely from the installation, use or interruption of any utility service to the Premises or the Building, including, without limitation, temporary failure to supply any heating, air conditioning, electrical, water or sewer services, or any of them, and in particular any interruption in service by any cause beyond the immediate control of Lessor except as expressly provided herein. Nothing herein shall be deemed to release Lessor from any liability for any damage or injury suffered or incurred as a result of Lessor's negligence or willful misconduct. No temporary failure to provide services shall relieve Lessee from fulfillment of any covenant of this Lease, including, without limitation, the covenant to pay Base Rent or any other Amount Due in the manner and amounts, and promptly at the times, as herein set forth unless caused by the negligence or willful misconduct of Lessor. Further, the parties acknowledge that the temporary failure to provide such services for any reason shall not render the Premises untenantable unless caused by the negligence or willful misconduct of Lessor. 7. MAINTENANCE. 7.1 Lessor shall keep the roof, foundation, load bearing interior walls and exterior walls (including glass therein) of the Building in good repair, except as to damage arising from the acts of Lessee or Lessee's agents, employees, invitees or licensees. On or before the Commencement Date, Lessor shall deliver to Lessee a certificate of warranty issued by a third party termite exterminating company stating that the Building (including the foundation of the Building) has been properly treated for termites. Except as otherwise provided in this Section 7.1, Section 7.5 and Section 40 hereof, Lessor shall not be obligated to maintain or make any repairs or replacements to the Premises or the Building during the Lease Term except for latent defects to the Building which shall be the responsibility of Lessor (provided that Lessor may pursue any warranty or guaranty relating thereto), and Lessee covenants and agrees to assume all responsibility of repair and maintenance of the Premises which is not the responsibility of Lessor under this Section 7.1, Section 7.5 or under Section 40 hereof. -5- 6 7.2 Upon the Commencement Date, Lessee shall accept and occupy the Premises for its intended use, and, except as otherwise provided in Section 7.1 hereof, Lessee shall, at its sole cost, risk, expense and liability, keep and maintain the Premises in good order and repair (including, without limitation, annual treatment of the Building and foundation thereof for termite infestation, provided that other than enforcing Lessee's termite bond on the Building Lessee shall not have any obligation for the repair of termite related damage to the Building), and in compliance with all applicable governmental codes, ordinances and regulations; provided, however, Lessee shall not be responsible for (i) environmental conditions existing on the Premises prior to the Commencement Date, unless caused by Lessee or (ii) compliance with governmental codes, ordinances and regulations applicable to the initial construction and completion of the Premises as provided in Section 40 hereof which were in effect as of the Commencement Date. Lessee shall also (i) keep all sewer and utility lines of the Building, including, without limitation, all sewer connections, plumbing, heating, ventilating and air conditioning equipment and appliances, wiring and glass, in good order and repair; (ii) provide janitorial services for the Building as required by Lessee; (iii) keep the Premises reasonably free from all litter, dirt, debris and obstructions and in a clean and sanitary condition; (iv) maintain the lawns, gardens, sidewalks, driveway and parking lots at the Premises in a clean and! orderly manner and (v) provide Lessor with copies of all maintenance agreements and all quarterly reports of service records. 7.3 At the expiration or other termination of this Lease, Lessee shall surrender the Premises (and the keys thereto) in as good condition as when received, loss by fire or other casualty not the result of any act or omission of Lessee, and ordinary wear and tear only, excepted. 7.4 Nothing in this Section 7 shall be deemed to relieve Lessee or Lessor from any liability which Lessee or Lessor, respectively, may have to the other, under the terms of this Lease or otherwise, on account of any damage as may be caused to the Premises or the Building by the negligence or misconduct of Lessee or Lessor, respectively, or its agents, employees, invitees or licensees. 7.5 Upon substantial completion of the Premises, Lessor shall and does hereby make to Lessee the same warranties relating to the construction of the Premises, and all parts thereof, as Lessor expressly receives from its contractor in its construction contract (Lessor shall obtain all such warranties as are customarily obtained from construction contractors for the construction of projects similar to the Premises). Lessor shall repair and replace or shall cause to be repaired and replaced all such portions of the Premises covered by such warranties upon the same terms and condition as provided in the warranties. Lessee shall be entitled to enforce all such warranties directly against Lessor on the same terms and conditions as Lessor may enforce against the maker of such warranty. Promptly after Lessor shall have commenced construction of the Premises Lessor shall provide Lessee with a list of all such warranties and a copy of the contract or other document setting forth the terms of the warranty. -6- 7 8. FORCE MAJEURE. In the event that either party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of failure of power, restrictive government laws or regulations, riots, insurrection, war, or periods of inclement and adverse weather conditions beyond or in excess of the average inclement and adverse weather conditions for the time period in question or other reason of a like nature other than finance not the fault of the party delayed in performing work or doing acts required under the terms of this Lease, then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of the delay, provided, however, (i) that such extension shall only apply to the extent that the party seeking such extension continuously complies with the next sentence and (ii) that in no event shall such extension exceed ninety (90) days. If either party hereto is hindered or delayed by reason of force majeure as provided above, the party so affected shall give prompt notice of such force majeure and shall use good faith and reasonably diligent efforts to end the force majeure or perform its obligations hereunder in an alternative manner which is acceptable to the other party hereto. The provisions of this Section 8 shall not cancel, postpone, or delay the due date of any payment to be made by Lessee hereunder, or operate to excuse Lessee from prompt payment of any Amount Due required by the terms of this Lease; provided however, nothing herein shall obligate the Lessee to begin the payment of Rent prior to the Rental Commencement Date of this Lease. 9. PROPERTY AND LIABILITY INSURANCE. 9.1 Lessee shall obtain prior to the Commencement Date and shall maintain and keep in full force and effect, or in the event that Lessor is able to obtain lower insurance rates Lessee at its option may cause Lessor to obtain and maintain and keep in full force and effect (at the sole cost and expense of Lessee), with Lessor and Lessor's mortgagees, Lessee and Lessee's lenders, named as insureds therein as their respective interests may appear, the following types and kinds of insurance: 9.1.1 Insurance against damage by fire, lightning and explosion with extended coverage, upon the Premises and the Building, including all improvements, fixtures and property of every description and kind owned by Lessor or which could be owned by Lessor at the conclusion of the Lease Term and located in the Building, including, without limitation, fittings, installations, alterations, additions, partitions and fixtures owned by Lessor, in an amount not less than one hundred percent (100%) of the full replacement cost thereof. In the event of any damage of the type insured against under this subsection 9.1.1, all insurance proceeds for such damage shall be paid to Lessor and Lessor's mortgagees. 9.1.2 Rent insurance against loss of income arising out of damage or destruction by fire, lightning, vandalism and malicious mischief and such other hazards as are required to be insured pursuant to subsection 9.1.1 hereof, in an amount not less than one hundred percent (100%) of twelve (12) months gross rental income from the Premises. Any proceeds from such rent insurance shall be paid to Lessor. -7- 8 9.2 Lessee shall comply with all applicable insurance regulations and will not use or keep any substance or material in or about the Premises which may vitiate or endanger the validity of insurance on the Building or cause such insurance to be canceled or suspended. If any insurance policy upon the Premises or the Building or any part thereof shall be canceled or shall be threatened by the insurer to be canceled or the coverage thereunder reduced or threatened in writing to be reduced, by reason of the use and occupation of the Premises by Lessee or by any assignee or subtenant of Lessee and if Lessee fails to remedy the condition giving rise to the cancellation or reduction or threat thereof within the later of (i) fifteen (15) days prior to the DATE (as such date may be extended by such insurer) set by such insurer as being the date on which such insurance shall be canceled or reduced or (ii) twenty-four (24) hours after notice thereof by Lessor, Lessor may, at its option, do any one of the following: 9.2.1 Declare a default by Lessee, and thereupon the provisions of Section 12 shall apply; or 9.2.2 Enter upon the Premises and remedy the condition giving rise to the cancellation or reduction or threat thereof. In such event, Lessee shall immediately pay the cost thereof to Lessor as additional rent, and if Lessee fails to pay such cost, Lessor may declare a default by Lessee and thereupon the provisions of Section 12 shall apply. Lessor shall not be liable for any damage or injury caused to any property of Lessee or of others located on the Premises reasonably resulting from the reentry unless such damage or injury is caused by Lessor's negligence. Lessee acknowledges that it has no right to receive any proceeds from any such insurance policies carried by Lessor other than those set forth in this Section 9 or those with the same types of coverage as set forth in this Section 9. 9.3 All insurance policies shall be taken out with companies acceptable to Lessor licensed and registered to operate in the State of Georgia and in form reasonably satisfactory to Lessor. The insurance may be by blanket insurance policy or policies. Such insurance policies may provide for deductible amounts from the coverages afforded thereby in amounts of no less than Five Thousand Dollars ($5,000.00). Lessee shall within fourteen (14) days of receipt from Lessee's insurance company deliver certificates evidencing the insurance policies and any endorsement, rider, or renewal thereof, to Lessor. Certificates evidencing renewals shall be delivered to Lessor no later than fifteen (15) days after each renewal, as often as renewal occurs, and in no event less than fifteen (15) days prior to the date on which the policy would otherwise expire. All insurance policies shall require the insurer to notify Lessor and Lessor's mortgagees in writing thirty (30) days prior to any material change, cancellation, or termination thereof. 9.4 Lessor and Lessee shall cooperate in connection with the collection of any insurance monies that may be due in the event of loss, and Lessee and Lessor shall execute and deliver such proofs of loss and other instruments which may be required for the purpose of obtaining the recovery of any such insurance monies. Lessee shall obtain with respect to all insurance policies taken out by Lessee regarding the Premises or Lessee's property located therein, a waiver of Lessee's insurance carriers subrogation rights against Lessor, in the insurance -8- 9 policy itself or on a standard form of waiver issued by Lessee's insurance carrier. Lessor shall obtain with respect to all insurance policies taken out by Lessor relating to the Premises, or Lessor's property therein, a waiver of Lessor's insurance carrier's subrogation rights against Lessee, in the insurance policy itself or on a standard form of waiver issued by Lessor's insurance carrier. 9.5 Lessee shall be solely responsible for the payment of the premiums for all policies of insurance which are required to be maintained by Lessee under this Section 9 or by Lessor at the request of Lessee. All such premiums shall be paid by Lessee to the companies issuing such insurance policies prior to the due date thereof of the invoice for the same. 9.6 Lessee shall, during its occupancy of the Premises and during the entire Lease Term, at its sole cost and expense, obtain, maintain and keep in force and effect, with Lessee, Lessor and Lessor's mortgagees named as additional insureds therein as their respective interests may appear, comprehensive general liability insurance with respect to the ownership, maintenance and operation of the Premises having a combined single limit of liability of not less than $1,000,000.00 and an umbrella liability policy having a limit of liability of not less than $5,000,000.00. Such insurance shall include coverage for "Fire Legal" liability with respect to the Premises and coverage against liability for bodily injuries or property damage arising out of the use by or on behalf of Lessee of owned, non-owned or hired automobiles and other vehicles for limits not less than that specified above. 9.7 Neither Lessee nor any of the Lessee Parties shall cause the Premises or the Building, or any part thereof to be damaged by fire or other casualty such that Lessor's right to insurance proceeds from such casualty are rendered void. If Lessee or any of the Lessee Parties cause such damage to the Building or the Premises such that Lessor's right to insurance proceeds are void, Lessee shall be fully responsible, to the extent not covered by insurance, for repairing, restoring, or paying for the damage as Lessor shall reasonably direct and this Lease shall remain in full force and effect without reduction or abatement of rent. 10. ALTERATIONS AND IMPROVEMENTS. 10.1 Without the prior written consent of Lessor which shall not be unreasonably withheld, conditioned or delayed, Lessee shall not make alterations, additions or improvements in or to the Premises or install and attach fixtures in and to the Premises, except that Lessee, without the prior written consent of Lessor, shall be entitled to make interior alterations, additions or improvements to the Premises not affecting the structure of the Building so long as Lessee (i) delivers to Lessor prior written notice of and a description of such minor interior alterations, additions or improvements, (ii) updates, at Lessee's sole cost and expense, Lessor's as-built plans and specifications of the Premises to reflect such alteration, addition or improvement which costs and expenses shall be at commercially reasonable rates, and (iii) restores the Premises on or before the expiration or earlier termination of the Lease Term to the condition they were prior to such alteration, addition or improvement, unless Lessor shall have agreed that such alterations, additions or improvements need not be removed. As a condition to Lessor's consent to alterations, additions or improvements, with respect to which Lessee is -9- 10 required to obtain Lessor's consent, Lessor may elect that any or all installations made or installed by or on behalf of Lessee be removed at the end of the Lease Term, and, if Lessor so elects, it shall be Lessee's obligation to restore the Premises to the condition they were prior to the alterations, additions, or improvements on or before the expiration or other termination of this Lease. Such removal and restoration shall be at the sole expense of Lessee. All alterations, additions, or improvements made, installed in, or attached to the Premises by Lessee, upon the consent specified above, shall be made at Lessee's expense in a good and workmanlike manner, strictly in accordance with plans and specifications approved by Lessor, all applicable laws, ordinances, regulations, and other requirements of any appropriate governmental authority, and any applicable covenants or other restrictions. Prior to the commencement of any such work, Lessee shall deliver to Lessor certificates issued by insurance companies licensed and registered to operate in the State of Georgia evidencing that workers' compensation insurance and public liability insurance, all in amounts satisfactory to Lessor, are in force and effect and maintained by all contractors and subcontractors engaged by Lessee to perform the work. 10.2 During the Lease Term, Lessee shall keep the Premises free from all liens, rights to liens, or claims of liens of contractors, subcontractors, mechanics, or materialmen for work done or materials furnished to the Property at the request of Lessee. Whenever and so often as any such lien shall attach or claims therefor shall be filed against the Property or any part thereof as a result of work done or materials furnished to the Property at the request of Lessee, Lessee shall, within fifteen (15) days after Lessee has notice of the claim for lien, cause it to be discharged of record, which discharge may be accomplished by deposit or bonding proceedings. If Lessee shall fail to cause the lien to be discharged within the fifteen-day period, then, in addition to any other right or remedy, Lessor may, but shall not be obligated to, discharge it either by paying the amount claimed to be due or by procuring the discharge of the lien by deposit or bonding proceedings. Any amount so paid by Lessor and all costs and expenses, including, without limitation, attorneys' fees, incurred by Lessor in connection therewith shall constitute additional rent payable by Lessee under this Lease and shall be paid by Lessee in full on demand of Lessor together with interest thereon from the date it was paid by Lessor. Lessee shall not have the authority to subject the interest or estate of Lessor to any liens, rights to liens, or claims of liens for services, materials, supplies, or equipment furnished to Lessee, and all persons contracting with Lessee are hereby charged with notice that they must look to Lessee and to Lessee's interest only to secure payment. 10.3 All alterations, additions, or improvements, including, but not limited to, fixtures, partitions, counters, and window and floor coverings, which may be made or installed by either of the parties hereto upon the Premises, irrespective of the manner of annexation, and irrespective of which party may have paid the cost thereof, excepting only movable office furniture, shop equipment and other trade fixtures and property of Lessee that may be removed from the Premises without material alteration put in at the expense of Lessee, shall be the property of Lessor, and shall remain upon and be surrendered with the Premises as a part thereof at the expiration or other termination of this Lease, without disturbance, molestation, or injury. Further, notwithstanding anything contained herein to the contrary, Lessor shall be under no obligation to insure the alterations, additions, or improvements or anything in the nature of a leasehold improvement made or installed by or on behalf of Lessee, or any of the Lessee's -10- 11 licensees, agents, invitees, customers, servants, employees, contractors or subcontractors (herein collectively called "Lessee Parties"), or any other person, and such improvements shall be on the Premises at the risk of Lessee only. 10.4 In the event Lessor makes any capital investment, major structural repairs or improvements in or to the Premises or Building (of which Lessor shall deliver prior notice to Lessee) which are required due to any negligence by Lessee or any of the Lessee Parties or any breach by Lessee of its obligations hereunder, any and all cost and expenses incurred by Lessor in making the capital investment, major structural repairs, or improvements shall constitute additional rent payable by Lessee under this Lease and shall be paid to Lessee in full on demand of Lessor, together with interest thereon from the date of the demand. The foregoing notwithstanding, if such capital investment relates to a condition, the repair of which is Lessee's responsibility hereunder, Lessor shall not make such repair unless Lessor has given Lessee notice of such repair and Lessee has failed to diligently and in good faith to pursue such repair or fails to complete such repair within thirty (30) days of notice from Lessor. 11. ASSIGNMENT OR SUBLETTING. 11.1 Lessee may assign this Lease or sublet or allow any other person, firm, or corporation to use or occupy the Premises, or any part thereof, without the prior written consent of Lessor. No assignment or subletting (with or without the consent of Lessor) shall release Lessee from its obligations under this Lease. 11.2 If Lessee shall assign this Lease or sublet the Premises, the acceptance by Lessor of the Amount Due from any person claiming as assignee, sublessee, or otherwise shall not be construed as a waiver of the right of Lessor thereafter to collect any rent from Lessee, it being agreed that Lessor may at any time accept any Amount Due under this Lease from any person offering to pay it without thereby acknowledging the person so paying as lessee in place of Lessee herein named, and without releasing Lessee from the obligations of this Lease, and without recognizing the claims under which such person offers to pay any Amount Due, but it shall be taken to be a payment on account by Lessee. 12. DEFAULTS. 12.1 In the event that (i) Lessee shall fail to pay the Base Rent or any amounts payable to Lessor as reimbursement of insurance premiums for insurance policies maintained by Lessor in accordance with Section 9.1 hereof, or any part thereof, within five (5) days after its due date, which failure is not cured within five (5) days after receipt of notice of such failure from Lessor, or (ii) Lessee shall fail to pay any Amounts Due (other than Base Rent or such insurance premiums described in the preceding clause) within thirty (30) days of receipt of notice that the same is due, or (iii) Lessee shall fail to comply with any of the terms, covenants, conditions, or agreements herein contained or any of the rules and regulations now or hereafter established for the government of the Building, which failure is not cured within thirty (30) days after receipt of notice of such failure from Lessor, or (iv) Lessee shall fail to comply with any term provision, condition, or covenant of any other agreement between Lessor and Lessee, which failure is not -11- 12 cured within thirty (30) days after receipt of notice of such failure from Lessor, or (v) Lessee commits any default or breach as defined in any other provision of this lease, which default or breach is not cured within thirty (30) days after receipt of notice of such default or breach from Lessor (provided, however, that if any default by Lessee described in clauses (iii), (iv) or (v) above cannot reasonably be cured within thirty (30) days, then so long as Lessee shall promptly commence and thereafter diligently and in good faith pursue the cure of such default to completion, Lessee shall not be deemed to be in default hereunder), then Lessor shall have the option, but not the obligation, to do any one or more of the following in addition to, and not in limitation of, any other remedy permitted by law, in equity or by this Lease: 12.1.1 Terminate this Lease, in which event Lessee shall surrender the Premises to Lessor immediately, and recover all sums owing and unpaid as of the date of termination and the unpaid rent. If Lessee refuses to surrender or deliver possession of the Premises to Lessor, Lessor may without notice enter into and upon the Premises, or any portion thereof, and take possession of and repossess the Premises and expel and remove the Lessee and its effects from the Premises, without being liable for prosecution and damages therefore, and without prejudice to any other remedy Lessor may have at law or equity; 12.1.2 Without terminating this Lease, retake possession of the Premises and rent the Premises, or any part thereof, for such term or terms and for such rent and upon such conditions as Lessor may, in its sole discretion, think best, making such changes, improvements, alterations, and repairs to the Premises as may be required. All rent received by Lessor from any reletting shall be applied first to the payment of any indebtedness other than rent due hereunder from Lessee; second, to the payment of any reasonable costs and expenses of the reletting, including but not limited to brokerage fees, attorneys' fees and costs of such changes, improvements, alterations, and repairs; third, to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Lessor and applied in payment of future rent or damage as they may become due and payable hereunder. If the rent received from the reletting during the Lease Term is at any time insufficient to cover the costs, expenses, and payments enumerated above, Lessee shall pay any deficiency to Lessor, as often as it shall arise, on demand; 12.1.3 Correct or cure the default and recover any amount expended in so doing, together with interest thereon until paid; 12.1.4 Recover any and all costs incurred by Lessor resulting directly, indirectly, approximately, or remotely from the default, including but not limited to reasonable attorneys, fees actually incurred and calculated at such attorneys' standard hourly rates. 12.2 Intentionally Deleted 12.3 In the event of a default or threatened default under this Lease by Lessee, Lessor shall be entitled to all equitable remedies, including without limitation, injunction and specific performance. -12- 13 12.4 Pursuit of any of the remedies herein provided shall not preclude the pursuit of any other remedies herein provided or any other remedies provided at law or in equity. Failure by Lessor to enforce one or more of the remedies herein provided shall not be deemed to construed to constitute a waiver of any default, or any violation or breach of any of the terms, provisions, or covenants herein contained. 13. BANKRUPTCY. The filing or preparation for filing by or against Lessee of any petition in bankruptcy, insolvency, or for reorganization under the Federal Bankruptcy Code, any other federal or state law now or hereafter relating to insolvency, bankruptcy, or debtor relief, or an adjudication that Lessee is insolvent, bankrupt, or an issuance of an order for relief with respect to Lessee under the Federal Bankruptcy Code, any other federal or state law now or hereafter relating to insolvency, bankruptcy, or debtor relief, or the execution by Lessee of a voluntary assignment for the benefit of, or a transfer in fraud of, its general creditors, or the chronic failure or inability of Lessee to pay its debts as they mature, or the levying on under execution of the interest of Lessee under this Lease, or the filing or preparation for filing by Lessee of any petition for a reorganization under the Federal Bankruptcy Code, or for the appointment of a receiver or trustee for a substantial part of Lessee's assets or to take charge of Lessee's business, or of any other petition or application seeking relief under any other federal or state laws now or hereafter relating to insolvency, bankruptcy, or debtor relief, or the appointment of a receiver or trustee for a substantial part of Lessee's assets or to take charge of Lessee's business, shall automatically constitute a default in this Lease by Lessee for which Lessor may, at any time or times thereafter, at its option, exercise any of the remedies and options provided to Lessor in Section 12 hereof; provided, however, that if such petition be filed by a third party against Lessee, and Lessee desires in good faith to defend against the petition and is not in any way in default of any obligation hereunder at the time of filing the petition, and Lessee within ninety (90) days thereafter procures a final adjudication that it is solvent and a judgment dismissing the petition, then this Lease shall be fully reinstated as though the petition had never been filed. 14. DAMAGE AND CONDEMNATION. 14.1 In the event during the Lease Term the Premises are damaged by fire or other casualty, but not to such an extent that repairs and rebuilding cannot reasonably be completed within two hundred forty (240) days of the date of the event causing the damage, Lessor shall and to the extent insurance proceeds therefore are paid by the insurance company, diligently and in good faith and as soon as practicable repair and rebuild the Premises. Without limiting in any respect the foregoing, Lessor and Lessee shall promptly after such casualty and in good faith meet and consult with each other and Lessor shall estimate reasonably the time necessary to restore such Premises to the condition prior to such casualty and Lessor agrees to use good faith and diligent efforts to complete such restoration within such period so reasonably estimated by Lessor. During such repair and rebuilding, this Lease shall remain in full force and effect, but Lessor may to the extent actually and reasonably necessary require Lessee temporarily to vacate the portions of the Premises so affected by such restoration activities while they are being repaired and, subject to the provisions of this Section 14.1, rent shall abate during this period to -13- 14 the extent that (i) the Premises are untenantable (including areas in which Lessee is required to vacate) and cannot be used by Lessee for the purposes contemplated in Section 4 hereof and (ii) an amount equal to such abated rent is paid to Lessor under the insurance policies required in Section 9.1.2 hereof; provided, however, that Lessor shall not be liable to Lessee for any damage or expense which temporarily vacating the Premises may cause Lessee. Lessor shall keep Lessee informed as to all aspects of the rebuilding and repair work and shall give Lessee notice of estimated completion dates. If the Premises are not repaired, rebuilt, or otherwise made suitable for occupancy by Lessee within the aforesaid two hundred forty (240) day period (or earlier time period estimated by Lessor for completion), Lessee shall have the right, by written notice to Lessor, to terminate this Lease, in which event rent shall be abated for the unexpired Lease Term, effective as of the date of the written notification, but the other terms and conditions of this Lease shall continue and remain in full force and effect until Lessee shall have vacated the Premises, removed all Lessee's personal property therefrom and delivered peaceable possession thereof to Lessor. If any part of the Premises is damaged such that repairs and rebuilding cannot reasonably be completed within two hundred forty (240) days of the date of the event causing the damage, Lessor or Lessee may by written notice to the other terminate this Lease in which event rent shall be abated for the unexpired Lease Term, Effective as of the date of the written notification, but the other terms and conditions of this Lease shall continue and remain in full force and effect until Lessee shall have vacated the Premises (except in all events Base Rent shall abate to the extent of any portion of the Premises that are untenantable), removed all Lessee's personal property therefrom and delivered peaceable possession thereof to Lessor. If a casualty occurs during the last three (3) years of the Lease Term and if Lessor shall fail within fourteen (14) days of such casualty to covenant to restore the Premises, then Lessee shall have the right to terminate this Lease within twenty eight (28) days of such casualty in which event rent shall be abated for the unexpired Lease Term, Effective as of the date of the written notification, but the other terms and conditions of this Lease shall continue and remain in full force and effect until Lessee shall have vacated the Premises (except in all events Base Rent shall abate to the extent of any portion of the Premises that are tenantable), removed all Lessee's personal property therefrom and delivered peaceable possession thereof to Lessor, and shall within a reasonable amount of time vacate the Premises. Failure by Lessee or Lessor, as the case may be, to comply with any provision of this Section 14.1 shall subject non-complying party to such costs, expenses, damages, and losses as the other party may incur by reason of non-complying party's breach hereof. 14.2 In the event the Premises shall be taken, in whole or in such substantial part that the remaining portion of the Premises cannot be reasonably used by Lessee as contemplated under this Lease, by condemnation or the exercise of the right of eminent domain, or if in lieu of any formal condemnation proceedings or actions, if any, Lessor shall sell and convey the Premises, or any such substantial part that the remaining portion of the Premises cannot be reasonably used as contemplated under this Lease, to the governmental or other public authority, agency, body, or public utility, seeking to take the Premises or any portion thereof, then Lessor or Lessee, at its option, may terminate this Lease upon ten (10) days' prior written notice to the other and prepaid rent shall be proportionately refunded from the date of possession by the condemning authority. Additionally, if Lessee reasonably and in good faith determines that such taking materially and adversely affects Lessee's ability to use the Premises as contemplated -14- 15 hereby, Lessee may within fourteen (14) days of such taking terminate this Lease. Lessor and Lessee shall each have the right with respect to their separate interests to appear and to claim and recover from the condemning authority such damages suffered by each party respectively. Lessee shall execute and deliver any instruments, at the expense of Lessor, that Lessor may deem necessary to expedite any condemnation proceedings, to effectuate a proper transfer of title to such governmental or other public authority, agency, body or public utility seeking to take or acquire the lands and Premises, or any portion thereof. Lessee shall vacate the Premises, remove all Lessee's personal property therefrom and deliver up peaceable possession thereof . Lessor or to such other party designated by Lessor in the aforementioned notice. Failure by Lessee or Lessor, as the case may be, to comply with any provisions of this Section 14.2 shall subject the non-complying party to such costs, expenses, damages, and losses as the other party may incur by reason of the non-complying party's breach hereof. If this Lease is not terminated under this Section 14.2, then to the extent and availability of condemnation proceeds received by Lessor and subject to the rights of any mortgagee thereto, Lessor shall, at the sole cost and expense of Lessor and with due diligence and in a good and workmanlike manner, restore and reconstruct the Premises within a period of two hundred ten (210) days after the date of the physical taking, and such restoration and reconstruction shall-make the Premises reasonably tenantable and suitable for the general use being made by Lessee prior to the taking; provided, however, Lessor shall receive any award of or condemnation proceeds specifically designated as compensation for such improvements. Notwithstanding the foregoing, if Lessor has not completed the restoration and reconstruction on or before two hundred ten (210) days after the date of physical taking so that the Premises are not reasonably tenantable and suitable for the general use being made by Lessee prior to the taking, Lessee, in addition to any other rights and remedies Lessee may have, shall have the right to cancel this Lease. If this Lease continues in effect after the physical taking, the rent payable hereunder shall be equitably adjusted both during the period of restoration and reconstruction and during the unexpired portion of the Lease Term. 14.3 In the event that during the Lease Term, any governmental authority or the order or decree of any court, requires Lessee to repair, alter, remove, reconstruct or improve (herein collectively called "Repairs") any part of the Premises, then the Repairs (to the extent such Repairs were not a result of the Premises' noncompliance with applicable laws in effect at the Commencement Date) shall be effected promptly at the sole cost and expense of Lessee and there shall not be any abatement of rent. If such Repairs relate to the structure of the Building, then Lessor in good faith and diligently shall perform such Repairs and there shall be no abatement of rent and Lessor shall use good faith efforts so as not to unreasonably interfere with Lessee's use of the Premises. 15. TAXES. 15.1 Lessee shall pay all taxes, assessments, and other governmental charges, general or special, ordinary or extraordinary, foreseen or unforeseen, including any installments therefore (herein called "Impositions"), levied, assessed, or otherwise imposed by any lawful authority or payable with respect to the Premises, excluding any income tax imposed upon Lessor except as provided in Section 15.2 hereof, and relating to the Lease Term. Any taxes or assessments relating to the Premises and for the year in which the Commencement Date occurs (including -15- 16 those under the Protective Covenants) shall be pro rated between Lessor and Lessee as of the Commencement Date and as of the Expiration Date. 15.2 If at any time during the Lease Term the methods of taxation prevailing on the date hereof shall be altered so that in lieu of, or as a substitute for, the whole or any part of the taxes, assessments, levies, impositions or charges now levied, assessed, or imposed on real estate and the improvements thereon, there shall be levied, assessed, or imposed a tax, assessment, levy, fee or other charge: (i) on or measured by the rents received therefrom; (ii) measured by or based in whole or in part upon the Premises and imposed on Lessor; or (iii) measured by the rent payable by Lessee under this Lease, then all such taxes, assessments, levies, impositions, charges, or fees or the part thereof so measured or based, shall be deemed to be included within the definition of "Impositions". The tax, levy or other imposition to which reference is made hereinabove shall include sales, excise, or similar taxes, but shall not include any net income, franchise, estate or inheritance taxes imposed on Lessor. 15.3 If Lessee fails to pay any Imposition required to be paid by Lessee by the terms of this Lease and Lessor pays the same, Lessee shall pay to Lessor, as additional rent, any interest or penalty incurred by Lessor due to Lessee's failure to pay such Imposition in a timely manner. The foregoing is in addition to and not a limitation of any other remedies of Lessor provided in this Lease. 15.4 In the event that a tax or assessment attributable to environmental protection legislation, as distinguished from a tax or assessment in the nature of a real estate property tax, is imposed upon Lessor by a governmental authority having jurisdiction over the Premises, which tax or assessment is attributable to a portion of the Premises being parking facilities available to the Lessee and the Lessee Parties, such tax or assessment shall be included within the definition of "Impositions". 15.5 Lessor shall diligently and in good faith use reasonable efforts to minimize the Impositions levied against the Premises, including, without limitation, retaining a property tax consultant acceptable to Lessor. Lessee shall have the right diligently and in good faith to use reasonable efforts to contest and minimize the Impositions levied against the Premises. 16. LIABILITY OF LESSOR AND LESSEE. Notwithstanding that joint or concurrent liability may be imposed upon Lessor by law, Lessee shall indemnify, defend, and hold harmless Lessor, at Lessee's expense, against (a) any default by Lessee or permitted subtenant hereunder; (b) any act or negligence of Lessee or any of the Lessee Parties; and (c) all claims for damages to persons or property by reason of the use or occupancy of the Premises not caused by Lessor or its agents, contractors, employees or invitees. Moreover, Lessor shall not be liable for any damage, injury, destruction, or theft to or of the Premises, the personal property of Lessee or any of the Lessee Parties, Lessee, or any of the Lessee Parties arising from any use or condition of the Premises, or any sidewalks, entranceways, or parking areas serving the Premises, or the act or neglect of covenants or any other person, or the malfunction of any equipment or apparatus serving the Premises, or any loss thereof by mysterious disappearance or otherwise not resulting from the negligence or misconduct of Lessor, its agents, contractors, employees or invitees. -16- 17 Lessor shall indemnify, defend, and hold harmless Lessee, at Lessors expense, against (a) any default by Lessor hereunder, (b) any act of negligence of Lessor, and (c) all claims for damages to persons or property negligently caused by Lessor. After the Commencement date and except for the construction and warranty obligations of Lessor in Sections 7.5 and 40 hereof, Lessee expressly agrees to look solely to Lessor's interest in the Premises (including rents, profits and, notwithstanding the last sentence in Section 9.2, insurance proceeds therefrom) for the recovery of any judgment against Lessor, it being agreed that Lessor (and its partners and shareholders) shall never be personally liable for any such judgment. 17. RIGHT OF ENTRY. 17.1 Lessor reserves the right upon reasonable notice to Lessee, except in the case of emergencies where no notice shall be required, for itself, its mortgagees, or other respective agents and duly authorized representatives, to enter and be upon the Premises at any time and from time to time to inspect the Premises provided that Lessee may be present during any inspection. 17.2 After reasonable notice to Lessee, Lessee shall permit Lessor or Lessor's agents at any reasonable hour of the day to enter into or upon and go through and view the Premises and to exhibit the Premises to prospective purchasers or tenants. 18. PROPERTY LEFT ON THE PREMISES. Upon the expiration of this Lease or if this Lease should terminate for any cause, if Lessee or any of the Lessee Parties or any other person should leave any property of any kind or character in or upon the Premises, the fact of the leaving of property in or upon the Premises shall be conclusive evidence of the intent by Lessee or such person to abandon the property so left in or upon the Premises, and such leaving shall constitute abandonment of the property. Lessor, its agents, or attorneys, shall have the right and authority without notice to Lessee or anyone else except as required by law, to remove and destroy, store, sell, or otherwise dispose of, the property, or any part thereof, without being in any way liable to Lessee or anyone else therefor. Lessee shall be liable to Lessor for all expenses incurred in the removal and destruction, storage, sale or other disposition of the property less any proceeds received by Lessor from the sale of such property. The property removed or the proceeds from the sale or other disposition thereof shall belong to the Lessor as compensation for the removal and disposition of the property. 19. OTHER INTERESTS. 19.1 This Lease and Lessees interest hereunder shall at all times be subject and subordinate to the lien and security title of any deeds to secure debt, deeds of trust, mortgages, or other interests heretofore or hereafter granted by Lessor or which otherwise encumber or affect the Premises and to any and all advances to be made thereunder and to all renewals, modifications, consolidations, replacements, substitutions, and extensions thereof (all of which are hereinafter called the "Mortgage"); provided, however, that with respect to that certain deed to secure debt from Lessor to Lenox Towers and any Mortgage hereinafter granted, such subordination is conditioned upon delivery to Lessee of a non-disturbance agreement in the form -17- 18 attached hereto as Exhibit "B" and by this reference incorporated herein and made a part hereof, and Lessee agrees that if a potential lender objects to the form of the non-disturbance agreement attached hereto as Exhibit "B" then Lessee shall in good faith consider alternative forms of non-disturbance agreements (but shall not be obligated to accept such alternative forms) to the extent required by such potential lender. This clause shall be self-operative and no further instrument of subordination need be required by any holder of any Mortgage. In confirmation of such subordination, however, Lessee shall, at Lessor's request, promptly execute, acknowledge, and deliver any instrument which may be required to evidence subordination to any Mortgage and to the holder thereof, and, in the event of a failure so to do, Lessor may, in addition to any other remedies for breach of covenant hereunder, execute, acknowledge, and deliver the instrument as the agent or attorney-in-fact of Lessee, and Lessee hereby irrevocably constitutes Lessor its attorney-in-fact for such purpose, Lessee acknowledging that the appointment is coupled with an interest and is irrevocable. Lessee hereby waives and releases any claim it might have against Lessor or any other party for any actions lawfully taken by the holder of any Mortgage. 19.2 In the event of a sale or conveyance by Lessor of Lessor's interest in the Premises other than a transfer for security purposes only, and except as provided to the contrary herein Lessor shall be relieved, from and after the date of transfer, of all obligations and liabilities accruing thereafter on the part of Lessor, provided that any funds in the hands of Lessor at the time of transfer in which Lessee has an interest shall be delivered to the successor of Lessor and provided that Lessor agrees that in no event shall Lessor be relieved from its construction obligations under Section 40 hereof. This Lease shall not be affected by any such sale and Lessee shall attorn to the purchaser or assignee. 19.3 Lessor represents and warrants to Lessee that as of the date hereof Lessor owns fee simple title to the Premises subject only to the matters set forth as exceptions in Lessor's commitment for title insurance insuring the Premises from Chicago Title Insurance Company, dated July 16, 1994, Commitment Number 07617.02, as endorsed by Endorsement 1 and as endorsed by Endorsement 2 (herein called the "Title Commitment") and subject to the deed to secure debt from Lessor to Lenox Towers. 20. LESSEE'S TRANSFER OF STOCK OR ASSETS. Lessee shall not cause or allow the dissolution, merger, consolidation, or other reorganization of Lessee, or the sale or other transfer of capital stock of Lessee, or the sale of the assets of Lessee such that Lessee or such surviving entity is financially unable to perform its obligations under this Lease. 21. POSSESSION. Lessor shall deliver to Lessee actual possession of the Premises upon "substantial completion" of the Premises in accordance with Section 40 hereof. 22. HOLDING OVER. There shall be no renewal, extension, or reinstatement of this Lease by operation of law. In the event of holding over by Lessee after the expiration or sooner termination of this Lease, with Lessor's acquiescence and without any express agreement of the parties, Lessee shall be a tenant at sufferance and all of the terms, covenants, and conditions of this Lease shall be applicable during that period, except that Lessee shall pay Lessor as Base -18- 19 Rent for the period of the hold over an amount equal to one and one half (1 1/2%) times the Base Rent which would have been payable by Lessee under Section 2.1 hereof had the holdover period been part of the original Lease Term, together with all additional rent due hereunder and together with any other Amount Due under this Lease. The rent payable by Lessee during the holdover period shall be payable to Lessor on demand. If Lessee holds over as a tenant at sufferance, Lessee shall vacate and deliver the Premises to Lessor upon demand. In the event Lessee fails to surrender the Premises to Lessor upon expiration or other termination of this Lease or of such tenancy at sufferance, then Lessee shall indemnify Lessor against any and all loss or liability resulting from any delay of Lessee in surrendering the Premises, including, but not limited to, any amounts required to be paid to third parties who were to have occupied the Premises and any attorneys' fees related thereto. 23. NO WAIVER. Lessee understands and acknowledges that no assent, express or implied, by Lessor to any breach of any one or more of the terms, covenants or conditions hereof shall be deemed or taken to be a waiver of any succeeding or other breach, whether of the same or any other term, covenant or condition hereof. 24. BINDING EFFECT. All the terms and provisions of this Lease shall be binding upon and apply to the successors, permitted assigns, and legal representatives of Lessor and Lessee or any person claiming by, through, or under either of them or their agents or attorneys, subject always, as to Lessee, to the restrictions contained in Section 11 hereof. 25. COMPLIANCE WITH RESTRICTIVE COVENANTS. In addition to and without in any way limiting any of the other provisions of this Lease, Lessee shall comply with any protective or restrictive covenants now or hereafter of record against the Building or the Property, including, without limitation, that certain Declaration of Covenants, Conditions, Restrictions and Easements for Technology Park North, dated February 11, 1994 and recorded in Deed Book 10243, page 118, Gwinnett County, Georgia records (herein the February 11, 1994 declaration is called the "Protective Covenants"), as the same may be amended or modified on a nondiscriminatory basis from time to time (a copy of which is attached hereto as Exhibit "C") and to the provisions of all rules, regulations, guidelines and procedures established, adopted or promulgated pursuant to the Protective Covenants; provided that Lessee shall not be required to comply with any such amendment or modification to the Protective Covenants to the extent such amendment or modification imposes a greater restriction on the use or development of the Premises. Lessor represents and warrants that the Protective Covenants have not been amended as of the date hereof and that any other restrictive covenants encumbering the Premises have not been amended as of the date hereof except as provided in the Title Commitment. Lessee shall pay when due any and all nondiscriminatory assessments charged, levied or assessed against the Land or the Building under such Protective Covenants. Lessor represents and warrants to Lessee that to the best of Lessor's actual knowledge, the current assessments under the Protective Covenants are approximately Five Hundred Dollars ($500) per acre per year. Lessee acknowledges that such assessments are subject to change. If because of an amendment to the Protective Covenants or any other restrictive covenants encumbering the Premises as of the date hereof Lessee's financial obligations thereunder are materially increased, Lessor shall pay such increased costs, provided that such obligation of Lessor shall in no event apply to increased -19- 20 financial obligations under the Protective Covenants because of an increase in Assessments (as defined in the Protective Covenants) resulting from an increase in the underlying costs relating thereto. Lessor, at its sole cost and expense, shall be responsible for causing the Premises, Building and initial landscaping relating thereto to comply with the Protective Covenants or any other restrictive covenants encumbering the Premises as of the date hereof. 26. SIGNS. Except for that signage identified on Exhibit "D" attached hereto and by this reference incorporated herein and made a part hereof, which has become approved by Lessor. Lessee shall not install, paint, display, inscribe, place, or affix any sign, picture, advertisement, notice, lettering, or direction (hereinafter collectively called "Signs") on the exterior of the Premises, the common areas of the Building, the interior surface of glass and any other location which could be visible from outside of the Premises without first securing written consent from Lessor therefor which shall not be unreasonably withheld, delayed or conditioned. Any Sign permitted by Lessor shall at all times conform with all municipal ordinances or other laws, regulations, deed restrictions, and protective covenants applicable regulations, deed restrictions, and protective covenants applicable thereto. Lessee shall remove all Signs at the expiration or other termination of this Lease, at Lessee's sole risk and expense, and shall in a good and workmanlike manner properly repair any damage caused by the installation, existence, or removal of Lessee's Signs. 27. ESTOPPEL CERTIFICATE. Lessee and Lessor shall, at any time and from time to time, upon not less than ten (10) days' prior written notice from the other, execute, acknowledge, and deliver to the other a statement in writing certifying that this Lease is unmodified and in full force and effect (or if modified, stating the nature of the modification and certifying that this Lease, as so modified, is in full force and effect) and the dates to which the rent and other charges are paid, and acknowledging that Lessee is paying rent on a current basis with no offsets of claims (or specifying the offsets or claims if there are any claims), and that there are not, to such certifying party's knowledge, any uncured defaults on the part of the other hereunder (or specifying the offsets, claims, or defaults, if any are claimed), and such other information reasonably required by Lessor. It is expressly understood and acknowledged that any such statement may be relied upon by any prospective purchaser or encumbrance of all or any portion of the Building or by any other person to whom it is delivered. 28. SEVERABILITY. The terms, conditions, covenants and provisions of this Lease shall be deemed to be severable. If any clause or provision herein contained shall be adjudged to be invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision herein, but the other clauses or provisions shall remain in full force and effect. 29. ENTIRE AGREEMENT. Lessee acknowledges that there are no covenants, representations, warranties, or conditions, express or implied, collateral or otherwise, forming part of or in any way affecting or relating to this Lease save as expressly set out in this Lease and that this Lease together with the Exhibits attached hereto constitutes the entire agreement between the parties hereto and may not be modified except as herein explicitly provided or -20- 21 except by subsequent agreement in writing of equal formality hereto executed by Lessor and Lessee. 30. CUMULATIVE REMEDIES. In the event of any breach, or threatened breach by Lessee of any of the covenants or provisions hereto, Lessor shall, in addition to all other remedies as provided by this Lease, have the right of injunction and/or to damages and the right to invoke any remedy allowed in law or in equity, and may have any one or more of the remedies contemporaneously. The various rights, remedies, powers, options, and elections of Lessor reserved, expressed, or contained in this Lease are cumulative and no one of them shall be deemed to be exclusive of the others, or of such other rights, remedies, powers, options, or elections as are now, or may hereafter, be conferred upon Lessor by law. 31. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been given when delivered in person or when received if delivered by the United States Mail, return receipt requested, or overnight courier addressed to the parties at the respective addresses set out below: If to Lessee: Melita International 6630 Bay Circle Norcross, Georgia 30071 If to Lessor: Technology Park/Atlanta, Inc. Suite 300 40 Technology Park/Atlanta Norcross, Georgia 30092 or to such other addresses as the parties may direct from time to time by thirty (30) days' written notice. However, the time period in which a response to any notice, demand, or request must be given, if any, shall commence to run from the date of receipt of the notice, demand, or request by the addressee thereof. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice, demand, or request sent. Lessee hereby appoints as its agent to receive service of all dispossessory or distraint proceedings and notices in connection therewith, the person in charge of or occupying the Premises at the time; and if no person is in charge of or occupying the Premises, then the service or notice may be made by attaching it on the main entrance to the Premises and on the same day enclosing, directing, stamping, and marking by first class certified mail, return receipt requested a copy of the service or notice to Lessee at the last known address of Lessee. 32. RECORDING. This Lease, or any portion hereof, shall not be recorded unless both parties hereto agree to the recording. 33. ATTORNEYS' FEES. Lessee agrees to pay Lessor's reasonable attorneys' fees actually incurred at standard rates and any costs and expenses which Lessor incurs in enforcing any of the obligations of Lessee under this Lease, if Lessor prevails in such proceedings. -21- 22 34. HOMESTEAD. Lessee waives all homestead rights and exemptions which it may have under any law as against any obligations owing under this Lease. Lessee hereby assigns to Lessor its homestead and exemption. 35. TIME OF ESSENCE. Time is of the essence of this Lease. 36. NO ESTATE IN LAND. This Lease shall create the relationship of landlord and tenant between Lessor and Lessee, and nothing contained herein shall be deemed or construed by the parties hereto, or by any third party, as creating the relationship of principal and agent, or of partnership, or of joint venture, or of any relationship other than landlord and tenant, between the parties hereto. No estate shall pass out of Lessor and Lessee has only a usufruct not subject to levy and sale. 37. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor of a lesser amount than the Base Rent or any other account of the earliest of such amount then due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Lessor may accept the check or payment without prejudice to Lessor's right to recover the balance of the rent or pursue any other remedy provided in this Lease. 38. BROKERS' FEES. Lessee and Lessor each warrant and represent to the other that it has had no dealings with any broker or agent in connection with this Lease other than Ackerman & Company and Lessor covenants to pay Ackerman & Company its commission pursuant to separate written agreement and Lessor shall indemnify and hold Lessee harmless from any liability relating to claim for a commission by Ackerman & Company, and each party hereto shall, hold harmless and indemnify the other from and against any and all costs, expense, or liability for any compensation, commissions, and charges claimed by any broker or agent (other than Ackerman & Company) claiming to have been engaged by the indemnifying party with respect to this Lease or negotiations thereof. Lessee represents and warrants that it has not incurred any obligation to Ackerman & Company for any commission or fee with respect to the Lease. 39. MISCELLANEOUS. 39.1 Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural unless the context otherwise requires. 39.2 The captions are inserted in this Lease for convenience only, and in no way define, limit, or describe the scope or intent of this Lease, or of any provision hereof, nor in any way affect the interpretation of this Lease. 39.3 This Lease is made and delivered in the State of Georgia and shall be governed by and construed in accordance with the laws of the State of Georgia. -22- 23 39.4 This Lease may be executed in counterparts which shall be construed together as one instrument. 39.5 Whenever Lessor's or Lessee's consent or approval is required herein, such consent and approval shall not be unreasonably withheld, conditioned or delayed. 40. CONSTRUCTION OF IMPROVEMENTS. 40.1 Lessor and Lessee have approved and do hereby approve the preliminary plans for the Premises identified on Exhibit "E", attached hereto and by this reference incorporated herein and made a part hereof (herein called the "Preliminary Plans"). 40.2 Lessor, at its sole cost and expense, shall cause detailed plans and specifications for the interior, exterior and basic structure of the Building and the landscaping of the Land (herein called the "Plans") to be prepared by Kohl, Gramigna Architects, Inc. (herein called the "Architect") based upon and in accordance with the Preliminary Plans and to be delivered to Lessee on or before September 14, 1994 (which date shall be extended one (1) day for every day after August 8, 1994 that this Lease has not been fully executed). Lessor, Lessee and the Architect shall meet generally once a week to discuss and consult with each other concerning the Plans and their preparation. Lessor and Lessee shall cooperate in good faith to resolve any objections expressed by Lessee to the Plans. If the Plans are not finally approved by Lessee on or before September 19, 1994 (which date shall be extended one (1) day for every day after August 8, 1994 that this Lease has not been fully executed) then (i) Lessee may at any time terminate this Lease (so long as the parties have not subsequently approved the Plans) by written notice thereof to Lessor and (ii) if the Plans are substantially in accordance with the Preliminary Plans (or any changes requested by Lessee) Lessor may terminate this Lease (so long as the parties have not subsequently approved the Plans) after the later of September 19, 1994 (which date shall be extended one (1) day for every day after August 8, 1994 that this Lease has not been fully executed) or the date that is five (5) days after Lessor delivers the Final Plans to Lessee, whereupon in the event the Plans are substantially in compliance with the Preliminary Plans (or any changes requested by Lessee) and if Lessor delivered the final Plans to Lessee on or before September 14, 1994 (as extended aforesaid) then Lessee shall promptly reimburse Lessor for expenses incurred by Lessor in connection with the preparation of said Plans and thereafter this Lease shall terminate and be of no further force and effect. A complete set of the final Plans, as and when finally approved by both Lessor and Lessee, shall be initialed on each page by an officer of Lessor and Lessee, shall be deemed thus incorporated in and made a part of this Lease and shall be herein called the "Plans." Lessor shall cause three (3) copies of the Plans to be delivered to Lessee. 40.3 Lessor shall commence construction of the improvements of the Premises in accordance with such Plans within twenty (20) days after such Plans are finally approved by Lessor and Lessee. -23- 24 40.4 No amendments to the Plans will be implemented without the written approval of both Lessor and Lessee, which approval Lessor and Lessee each agree not unreasonably to withhold or delay (disapproval by the holder of any Mortgage shall be deemed a reasonable basis for disapproval) (herein such amendments are called "Change Orders"). Any proposed Change Order to the Plans shall be submitted by the proposing party to the other party in writing and shall be approved or rejected in writing within ten (10) days after receipt thereof by the non-proposing party. With respect to any Change Order proposed by Lessee, Lessee shall pay any "additional construction costs" which are attributable to such Change Order as follows: 40.4.1 With respect to the first $10,000.00 (in the aggregate) of additional construction costs which are attributable to a Change Order or Change Orders proposed by Lessee, Lessee shall pay such additional construction costs to Lessor upon the Completion Date. 40.4.2 With respect to any additional construction costs greater than $10,000.00 in the aggregate which are attributable to a Change Order or Change Orders proposed by Lessee, Lessee shall pay to Lessor such additional construction costs prior to commencement by Lessor of construction required under such Change Order or Change Orders. As used herein, "additional construction costs" means the total cost incurred by Lessor attributable to such Change Order including, without limitation, architectural, engineering and design fees, the amount charged to Lessor by its contractor, all construction related costs, the costs of any insurance premiums which are required with respect to the construction of the improvements, the costs of sales or use taxes with respect to materials brought to the Premises, the costs of all administrative, profit or overhead allowances charged by the contractor and Lessor's indirect project management costs not to exceed ten percent (10%) of total project costs that are greater than $10,000.00 (attributable to such Change Order or Change Orders). 40.5 Lessor shall substantially complete the Premises on or before the date that is two hundred twenty-five (225) days after the date on which the Plans are approved by Lessee in writing (herein called the "'Completion Date"). The Completion Date shall be extended to the extent construction or completion of construction is delayed (i) by reason of force majeure as set forth in Section 8 hereof making the construction of the Premises impractical or delaying the same, or (ii) by amendments to the Plans requested by Lessee, or (iii) by reason of any other act or omission of Lessee, its contractors, employees and agents that actually delay construction of the Premises and for which Lessor shall promptly notify Lessee in writing, but shall not be extended for any reason, except Change Orders, past the date that is one hundred eighty (180) days after the Completion Date (herein called the "Final Date of Completion"). In the event construction of the Premises is not "substantially completed" on or before the date that is thirty (30) days after the Completion Date, as extended as aforesaid, Lessor shall pay Lessee as its sole remedy and as liquidated damages the sum of $1,000.00 for each day that the Premises are not substantially completed after the date that is thirty (30) days after the Completion Date, as extended as aforesaid. If the Premises are not "substantially completed" on or before the Final -24- 25 Date of Completion, this Lease at the option of Lessee shall terminate and be of no further force and effect. 40.6 The term "substantially completed," "substantially complete," or "substantial completion" as used in this Lease shall mean completed substantially in accordance with the Plans, as amended as provided herein, to the extent that the Premises, may be occupied by Lessee subject to a normal punchlist of incomplete items which taken individually or in the aggregate do not materially or substantially interfere with Lessee's intended use of the Premises. In no event, however, shall the Premises be deemed to be substantially complete until Lessor has furnished Lessee with a validly issued certificate of occupancy from the appropriate governmental authorities required to allow Lessee initially to occupy and use the Premises. 40.7 Lessor shall notify Lessee in writing on the date that Lessor believes the Premises to be "substantially completed" in accordance with the Plans, as amended in accordance with the terms hereof. Upon the substantial completion of improvements as provided herein, Lessor shall notify Lessee of such completion, and the Architect hereto within three (3) days after such notice shall perform a walk-through inspection of the Premises. During such inspection the parties shall prepare a punchlist of defective or incomplete items, if any, which items Lessor shall correct within ninety (90) days after the date of such inspection. Upon substantial completion, Lessor shall deliver to Lessee and Lessor shall cause the Architect to deliver to Lessee, written certification, (a) that, the Plans are complete, that, the Plans provide for the Premises to be constructed in accordance with all applicable zoning, building and other occupancy laws and all other applicable laws, rules and regulations and that, the Plans provide for a complete properly functioning building in accordance with normal architectural design standards for a building comparable to the Premises, (b) that (to the best of the Architect's knowledge) the Plans have received all requisite approvals under the Protective Covenants and (c) that, to the best of the certifying party's knowledge after diligent inquiry, the Premises have been substantially completed in accordance with the Plans subject only to the agreed upon punchlist items. Additionally, upon substantial completion of the Premises Lessor shall deliver to Lessee a certificate from an exterminating company chosen by Lessor, stating that the Premises are free from termite infestation. 40.8 Notwithstanding anything to the contrary contained herein, the Commencement Date, and therefore the date on which the payment of rent commences hereunder, shall be accelerated by the number of days, if any, "substantial completion" (i) is delayed due to amendments to the Plans requested by Lessee, or (ii) is otherwise delayed if such delay is actually caused by Lessee, its contractors, employees, or agents, and Lessor shall so notify Lessee. 40.9 Upon the Commencement Date, Lessor shall assign to Lessee, to the extent assignable, all guarantees and warranties given by third parties to Lessor and relating to items in the Premises the maintenance of which is the obligation of Lessee hereunder; provided, however, that to the extent any such guarantees and warranties are in effect after the expiration of the Lease Term, Lessee shall assign the expiration of the Lease Term to Lessor prior to such guarantees and warranties. -25- 26 40.10 Lessor agrees to obtain three (3) competitive bids from general contractors to construct the Premises in accordance with the Plans. Upon receipt of the bids, Lessor shall deliver to Lessee copies of each of the bids for Lessee's review. Lessor agrees to accept the lowest bid it receives. In the event the lowest bid is for a total contract sum of less than $3,300,000.00, the Base Rent due under this Lease shall be reduced by an amount equal to the amount by which the bid is less than the $3,300,000 divided by 120. 41. PARKING AREAS. 41.1 Lessor shall provide Lessee with parking spaces on the Land in accordance with the Plans. Such parking spaces shall be for the exclusive use of Lessee and the Building. 41.2 Lessee acknowledges and agrees that the Premises, including, without limitation, lawns, gardens, parking areas, sidewalks and driveways, shall at all times be subject to the exclusive control and management of Lessee. Lessee shall, at all times and at its sole cost and expense, operate and maintain the areas referred to above free from all litter, dirt, debris and obstructions, and in a clean and sanitary condition. 41.3 Lessee, for itself and the Lessee Parties, acknowledges and agrees that its indemnification of Lessor set forth in Section 16 hereof shall extend to and include any occurrence upon or within the lawns, gardens, sidewalks, driveways and parking lots of the Premises, and the insurance required to be obtained and maintained in force by Lessee shall extend to and include the occurrences involving Lessee and any of the Lessee Parties upon or within the lawns, gardens, sidewalks, driveways and parking lots of the Premises, to the full extent of Lessee's insurable interest therein. 41.4 Lessee shall cooperate fully with Lessor in the enforcement of any reasonable and nondiscriminatory program of rules and regulations designed for the orderly control and operation of parking areas. 42. OPTION TO EXTEND. Provided that Lessee is not in default hereunder (after the expiration of any applicable grace and cure periods) on the last day of the initial Lease Term hereof and is in possession of the Premises and if the Lease is then in full force and effect, Lessee shall have the (hereinafter called the "First Option") to extend the Lease Term hereof for a period of three (3) years after the last day of the initial Lease Term (herein called the "First Extended Lease Term"). Provided that Lessee has exercised the First Option as provided above, is not in default hereunder on the last day of the First Extended Lease Term and is in possession of the Premises and if the Lease is then in full force and effect, Lessee shall have a second option (herein called the "Second Option") to extend the Lease Term hereof for an additional period of three (3) years after the last day of the First Extended Lease Term (herein called the "Second Extended Lease Term"). Provided that Lessee has exercised the Second Option as provided above, is not in default hereunder on the last day of the Second Extended Lease Term and is in possession of the Premises and if the Lease is then in full force and effect, Lessee shall have a third option (herein called the "Third Option") to extend the Lease Term hereof for an additional -26- 27 period of three (3) years after the last day of the Second Extended Lease Term (herein called the "Third Extended Lease Term"; the First Extended Lease Term, the Second Extended Lease Term and the Third Extended Lease Term are hereinafter collectively called the "Extended Lease Terms"). All terms and conditions of this Lease shall apply during each Extended Lease Term except that Lessee's Annual Base Rental and Base Rent shall he determined in accordance with Section 42.1 hereof. The First Option shall be exercised by written notice from Lessee to Lessor given on or before the date that is twelve (12) months prior to the expiration of the initial Lease Term, the Second Option shall be exercised by written notice from Lessee to Lessor given on or before twelve (12) months prior to the expiration of the First Extended Lease Term and the Third Option shall be exercised by written notice from Lessee to Lessor given on or before twelve (12) months prior to the expiration of the Second Extended Lease Term. 42.1 The Annual Base Rental rate under this Lease for the Extended Lease Terms shall then be determined as follows: 42.1.1 Upon Lessee's written request prior to the required exercise date of any option, Lessor shall promptly deliver written notice to Lessee of Lessor's estimation of the fair market rental rate and shall negotiate in good faith with Lessee in an attempt to agree upon such fair market rental rate. The Annual Base Rental under this Lease shall be an amount equal to ninety-five percent (95%) of the then "fair market rental rate," as hereinafter defined, as agreed upon by Lessor and Lessee not later than forty-five (45) days after Lessee's delivery to Lessor of written notice exercising the First Option, Second Option or Third Option, as appropriate. In the event Lessor and Lessee are unable to agree upon the definition of the fair market rental rate prior to the required exercise date, then the Annual Base Rental for the Extended Lease Terms shall be an amount equal to the then "fair market rental rate," as hereinafter defined and established. The phrase "fair market rental rate" shall mean the annual rental rate (projected to the date of the commencement of the Extended Lease Terms) which Lessee would expect to pay and Lessor would expect to receive under leases for space of comparable size and quality to the Premises for comparable office buildings in the north suburban Atlanta, Georgia area and as provided for in, and upon terms and conditions comparable to, this Lease (including the three (3) year lease term) covering premises similar to the Premises and taking into account any concessions offered by landlords for such comparable space to the Premises, including without limitation, rental concessions, tenant improvement and design allowances and similar concessions. If Lessor and Lessee have not reached agreement on a fair market rental rate and executed an amendment to this Lease setting forth such agreement on or before the date that is forty-five (45) days after Lessee's delivery to Lessor of written notice exercising the First Option, the Second Option or the Third option, as appropriate, and Lessee still desires to extend the term of this Lease, then, within ten (10) days after that date, each party shall appoint and employ, a real estate professional to appraise and establish the "fair market rental rate". The two real estate professionals, thus appointed, shall meet promptly and attempt to agree upon and establish said rate or, upon failing to do so, shall then jointly designate a third real estate professional within ten (10) days of the appointment of the last two real estate professionals. If they are unable to agree upon the third real estate professional, either of -27- 28 the parties, after giving five (5) days' notice to the other, may apply to a judge of the Superior Court of Gwinnett County, Georgia (to whose jurisdiction for this limited purpose both Lessor and Lessee hereby consent) for the selection of a third real estate professional. Each of bear the parties shall bear one-half (1/2) of the cost of the appointment of the real estate professionals. Within thirty (30) days after the selection of the third real estate professional, the real estate professionals shall agree upon the "fair market rental rate". If the real estate professionals are unable to agree within the stipulated time, then each of the real estate professionals shall independently estimate the fair market rental rate. Any rate that is more than ten (10%) percent different from the middle estimate shall be disregarded, and the remaining estimates shall be averaged to determine the fair market rental rate. In any of said events, the determination so chosen shall be final, conclusive and binding upon both Lessor and Lessee. 42.1.2 Notwithstanding the foregoing, (i) the Annual Base Rental for the first Lease Year of the First Extended Lease Term shall not exceed an amount equal to $667,528.51 (one hundred five percent (105%) of the Annual Base Rental for Lease Year 10), (ii) the Annual Base Rental for the second Lease Year of the First Extended Lease Term shall not exceed an amount equal to $680,879.08 (one hundred two percent (102%) of the Annual Base Rental for the first Lease Year of the First Extended Lease Term), and (iii) the Annual Base Rental for the third Lease Year of the First Extended Lease Term shall not exceed an amount equal to $694,496.66 (one hundred two percent (102%) of the Annual Base Rental for the second Lease Year of the First Extended Lease Term). 42.2 There shall be no further extensions or renewals of the Lease Term, except as expressly agreed to by the parties hereto in writing. 42.3 During the Extended Terms, Lessor shall have no obligations to make any alterations or improvements to the Premises. 42.4 Lessor shall have no obligations in the Extension Terms to pay any building allowances, design allowances or similar items to Lessee. 43. ENVIRONMENTAL CONCERNS. Lessor hereby warrants and represents to Lessee that to the best of Lessor's knowledge there has been no release of a "Hazardous Substance" on or from the Premises, or any part thereof, which has created or which will create an imminent and substantial endangerment to health, welfare or the environment by Lessor or other party acting at the direction or with the consent of Lessor. Lessor has not received notification that it is a potentially responsible party under Section 107 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") as a result of the acts or omissions on or in any MANNER AFFECTING THE PREMISES. Lessor has not received notification from any state or local government under any similar provisions of state or local law. As used herein, Hazardous Substance shall mean any petroleum or chemical liquids or solids, liquid or gaseous products, contaminants, oils, radioactive materials, asbestos, PCB's, ureaformaldehyde, or any toxic or hazardous waste or hazardous substances (collectively, "Hazardous Substances"), as those terms are used in (A) the Resources Conservation Recovery Act, as amended by the Hazardous and -28- 29 Solid Waste Amendments of 1984, 42 U.S.C. Section.Section. 6901 et seq.; (B) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Section.Section. 9601 et seq.; (C) the Clean Water Act, 33 U.S.C. Section.Section. 1251 et seq.; (D) the Toxic Substances and Control Act, 15 U.S.C. Section.Section. 2601 et seq.; (E) the Clean Air Act, 42 U.S.C. Section.Section. 7401 et seq.; (F) any and all applicable environmental laws of the State of Georgia; and (G) any other applicable federal, state or local law governing hazardous substances, as such laws may be amended from time to time (collectively, the "Hazardous Waste Laws"). Lessor shall at all times indemnify and hold harmless Lessee against and from any and all claims, suits, actions, debts, damages, costs, losses, obligations, judgments, charges, and expenses, of any nature whatsoever suffered or incurred by Lessee due to a breach by Lessor of the preceding representation and warranty. Lessee shall at all times indemnify and hold harmless Lessor against and from any and all claims, suits, actions, debts, damages, costs, losses, obligations, judgments, charges, and expenses, of any nature whatsoever suffered or incurred by Lessor under or on account of the Hazardous Waste Laws due to any discharge of Hazardous Substances at the Premises during the Lease Term and not caused by Lessor or the threat of a discharge of any Hazardous Substances at the Premises during the Lease Term and not caused by Lessor. Lessor shall at all times indemnify and hold harmless Lessee against and from any and all claims, suits, actions, debts, damages, costs, losses, obligations, judgments, charges, and expenses, of any nature whatsoever suffered or incurred by Lessee under or on account of the Hazardous Waste Laws due to any discharge of Hazardous Substances at the Premises prior to the Lease Term or caused by Lessor or the threat of a discharge of any Hazardous Substances at the Premises prior to the Lease Term or caused by Lessor. 44. SELF HELP. If Lessor fails to perform any material obligation or duty of Lessor in this Lease and such failure shall continue (in the event of a non-emergency condition) for a period of thirty (30) days after receipt of written notice from Lessee of such failure (in the event of an emergency condition Lessee shall give Lessor such notice as in reasonable and practical under the circumstances), then, without prejudice to any of Lessee's other rights and remedies at law or in equity, provided that Lessor is not then diligently and in good faith pursuing the cure completion of such failure to completion (or in the event of an emergency condition, there exists an imminent threat of material damage to the Premises, Lessee's property or its employees), Lessee may perform such obligation and duty on behalf of Lessor and Lessor shall pay Lessee the reasonable cost of such cure. If Lessor shall fail to pay to Lessee all such costs incurred by Lessee within thirty (30) days of demand by Lessee, then Lessee may offset and deduct such unpaid amounts against the next monthly installments of Base Rent due hereunder. -29- 30 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written. LESSOR: TECHNOLOGY PARK/ATLANTA, INC., a Georgia Corporation By: --------------------------------- Richard R. O'Brien Executive Vice President [CORPORATE SEAL] LESSEE: MELITA INTERNATIONAL CORPORATION, a Georgia corporation By: ---------------------------------- Its: ------------------------------ [CORPORATE SEAL] -30- 31 ASSIGNMENT AND ASSUMPTION OF LEASE This instrument is executed and delivered pursuant to that certain Agreement of Purchase and Sale ("Agreement") dated this 10th day of November, 1995, between TECHNOLOGY PARK/ATLANTA, INC., Georgia corporation, ("Seller") and 5051 PEACHTREE CORNERS CIRCLE, L.L.C., a Georgia limited liability company ("Purchaser") covering the real property described in Exhibit A attached hereto ("Real Property"). I. Assignment and Assumption of Lease. For good and valuable consideration Seller hereby assigns, transfers, sets over and conveys to Purchaser, and Purchaser hereby accepts all of the landlord's right, title and interest in and to all tenant leases (the "Lease") covering the Real Property currently in effect, described on Exhibit B attached hereto and by this reference incorporated herein, and Purchaser hereby assures and agrees to perform all of the landlord's obligations under the Lease arising from and after the date hereof but as to the landlord's obligations with regard to security deposits and other deposits only to the extent the security deposits and other deposits have been transferred or credited to Purchaser; II. Warranty. Seller hereby represents and warrants to Purchaser that it is the owner of the lessor's interest under the Lease, that such interest is free and clear of all liens, charges and encumbrances other than the Permitted Exceptions (as defined in the Agreement), and Seller warrants and defends title to the above-described lessor's interest unto Purchaser, its successors and assigns, against the claims of all persons claiming by, through or under Seller, subject only to the Permitted Exceptions as defined in the Agreement. Seller has no knowledge of any encumbrance affecting the remaining property conveyed hereby that would prevent Purchaser's use thereof in connection with the operation of the Real Property; Seller's knowledge shall be limited to the actual knowledge of Richard R. O'Brien, with reasonable inquiry. III. Indemnities. Seller agrees to defend, indemnify and hold Purchaser harmless from and against any and all claims, losses, damages and liabilities that may be asserted against or incurred by Purchaser which are directly or indirectly caused by or result from any obligations of Seller arising under the Lease occurring prior to the date hereof, including without limitation any failure of Sealer to transfer or credit any security deposit to Purchaser, if any. Purchaser agrees to defend, indemnify and hold Seller harmless from and against any and all claims, losses, damages and liabilities that may be asserted against or incurred by Seller which are directly or indirectly caused by or result from any obligation of Purchaser under the Lease arising after the date hereof, including any default related to tenant security deposits which have been transferred or credited to Purchaser, if any. AS TO BOTH SIGNATURES, SIGNED, SEALED SELLER: AND DELIVERED IN THE PRESENCE OF: TECHNOLOGY PARK/ATLANTA, INC. /s/ - -------------------------------- Unofficial Witness By: /s/ Richard R. O'Brien --------------------------------- Name: Richard R. O'Brien Title: Executive Vice President PURCHASER: /s/ Regina V. Cleveland - --------------------------------- Notary Public 5051 PEACHTREE CORNERS CIRCLE, L.L.C. Commission Date: August 18, 1999 By: /s/ Aleksander Szlam -------------------------------- Name: Aleksander Szlam [NOTARY SEAL] Title: Manager__________________ -31- EX-10.2 8 1992 STOCK OPTION PLAN 1 EXHIBIT 10.2 MELITA INTERNATIONAL CORPORATION 1992 DISCOUNTED STOCK OPTION PLAN 2 MELITA INTERNATIONAL CORPORATION 1992 DISCOUNTED STOCK OPTION PLAN TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 3. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 4. SHARES SUBJECT TO PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 5. TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 6. TERM OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 7. INDEMNIFICATION OF COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 8. AMENDMENT AND TERMINATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 9. NO OBLIGATION TO EXERCISE OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 10. CHANGE IN CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 11. GENERAL RESTRICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 12. RIGHTS AS A STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3 MELITA INTERNATIONAL CORPORATION 1992 DISCOUNTED STOCK OPTION PLAN THIS INDENTURE is made this 4th day of June 1992, by MELITA INTERNATIONAL CORPORATION, a Georgia, USA corporation (hereinafter called the "Company"); W I T N E S S E T H: WHEREAS, the Company desires to promote in its employees the strongest interest in the growth and success of the business of the Company, the assurance that they will share in the prosperity of the business of the Company, and the incentive to remain in the employ of the Company; and WHEREAS, to that end the Company desires to provide those employees who are eligible hereunder with options to purchase shares of the Company and, accordingly, has formulated the discounted stock option plan herein embodied; and WHEREAS, the Board of Directors of the Company have approved and authorized the discounted stock option plan herein embodied; NOW, THEREFORE, the Company does hereby establish the Melita International Corporation Discounted Stock Option Plan (hereinafter called the "Plan") so that it shall read in its entirety as follows: SECTION 1. DEFINITIONS Wherever used herein, the masculine pronoun shall be deemed to include the feminine, and the singular to include the plural, unless the context clearly indicates otherwise, and the following words and phrases shall, when used herein, have the meanings set forth below: 1.1 "Act" means the Securities Exchange Act of 1934. 1.2 "Affiliate" means (a) any corporation which is a member of the same controlled group of corporation (within the meaning of Section 414(b) of the Code, as defined herein) as is the Company, and (b) any other trade or business (whether or not incorporated) controlling, controlled by, or under common control (within the meaning of Section 414(c) of the Code) with the Company. 4 1.3 "Agreement" means a Melita International Corporation 1992 Discounted Stock Option Agreement, which is an agreement subject to the terms of the Plan. 1.4 "Board of Directors" means the Board of Directors of the Company. 1.5 "Code" mans the Internal Revenue Code of 1986, as amended. 1.6 "Committee" means the committee appointed by the Board of Directors to administer the Plan. 1.7 "Employee" means any person who is employed by the Company or an Affiliate for purposes of the Federal Insurance Contributions Act. 1.8 "Option" means an option to purchase Shares of the Company granted pursuant to and in accordance with the provisions of the Plan. 1.9 "Optionee" means an Employee who is granted an Option pursuant to and in accordance with the provisions of the Plan. 1.10 "Option Shares" means Shares subject to and issued pursuant to an exercise of an Option granted under the Plan. 1.11 "Share" means a share of the common stock of the Company. SECTION 2. ADMINISTRATION 2.1 Delegation to Committee. The Plan shall be administered by the Committee. The Committee shall consist of at least two members of the Board of Directors and shall be appointed by the Board of Directors, but, after the first registration of an equity security of the Company under Section 12 of the Act, no person shall be appointed as a member of the Committee who is, or within one year prior to his becoming a member of the Committee was, granted or awarded -2- 5 equity securities pursuant to the Plan or any other plan of the Company or an "affiliate" within the meaning of Rule 16b-3 under Section 16(b) of the Act, except that participation in any plan which does not disqualify a director from being disinterested as provided in Rule 16b-3 shall not disqualify a person from becoming a member of the Committee. The Board of Directors may from time to time remove members from or add members to the Committee. Vacancies on the Committee shall be filled by the Board of Directors. 2.2 Committee Actions. The Committee shall select one of its members as chairman, and shall hold meetings at such times and places as it may determine. Acts approved by the majority of the Committee in a meeting at which a quorum is present or acts reduced to or approved in writing by a majority of the members of the Committee shall be the valid acts of the Committee. A quorum shall be present at any meeting of the Committee which a majority of the Committee members attend. 2.3 Finality. The Committee shall have the authority in its sole discretion to interpret the Plan, to grant Options under and in accordance with the provisions of the Plan, and to make all other determinations and to take all other actions it deems necessary or advisable for the implementation and administration of the Plan or Agreements thereunder, except to the extent such powers are herein reserved by the Board of Directors. All actions of the Board of Directors and the Committee shall be final, conclusive, and binding upon the Employee. No member of the Board of Directors or the Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any grant of an Option thereunder. -3- 6 SECTION 3. ELIGIBILITY Employees who are designated by the Committee shall be eligible to receive Options under the Plan on the terms and subject to the restrictions hereinafter set forth. SECTION 4. SHARES SUBJECT TO PLAN 4.1 The aggregate number of Option Shares which may be issued under the Plan shall at no time exceed 640,000. The number of Shares with respect to which an Option may be granted to any individual shall be determined by the Committee. The limitations established by this Section shall be subject to adjustment in accordance with the provisions of the Plan. 4.2 In the event that an Option expires or is terminated for any reason, the Option Shares allocable to the unexercised portion of such Option may again be subjected to an Option under the Plan. SECTION 5. TERMS AND CONDITIONS 5.1 Grant of Option. Each Option granted pursuant to the Plan shall be authorized by the Committee. 5.2 Stock Option Agreement. Each Option shall be evidenced by an Agreement, in such form and containing such terms and conditions as the Committee from time to time may determine, provided that each Agreement: (a) shall state the number of Option Shares to which it pertains; -4- 7 (b) shall state the exercise price and exercise period; (c) shall provide that the Option is exercisable, with respect to the number of Shares to which it pertains, only if and to the extent that the Optionee is vested pursuant to the vesting formula provided in the Agreement. SECTION 6. TERM OF PLAN The Plan shall be effective on the date hereof and shall continue to be effective until terminated by the Board of Directors. SECTION 7. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification that the members of the Committee may have, each member of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which it may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by it in settlement thereof (provided the settlement has received the prior approval of the Company) or paid by it in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in the action, suit or proceeding that the Committee member is liable for negligence or misconduct in the performance of its duties; provided that promptly after institution of the action, suit or proceeding the Committee member shall in writing offer the -5- 8 Company the opportunity, at its own expense, to handle and defend such matter. Upon the delivery to the Committee member of written notice of assumption by the Company of the defense of such matter, the Company will not be responsible to the Committee member for any further fees and disbursements relating to the defense of such matter, including fees and disbursements of counsel. SECTION 8. AMENDMENT AND TERMINATION OF THE PLAN The Board of Directors may, insofar as permitted by law, from time to time, with respect to any Shares at the time not subject to Options, suspend or terminate the Plan or revise or amend it in any respect whatsoever. SECTION 9. NO OBLIGATION TO EXERCISE OPTION The granting of an Option shall impose no obligation upon the Optionee to exercise the Option. SECTION 10. CHANGE IN CAPITALIZATION If the number of Shares shall be increased or reduced by a change in par value, split-up, stock split, reverse stock split, reclassification, merger, consolidation, distribution of stock dividends or similar capital adjustments, an appropriate adjustment shall be made by the Committee in the number and kind of Shares available for the granting of Options under the Plan. In addition, the Committee shall make an appropriate adjustment in the number and kind -6- 9 of Shares as to which outstanding Options, or the portions thereof then unexercised, shall be exercisable, to the end that the Optionee's proportionate interest shall be maintained as before the occurrence of the event. The adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option and with a corresponding adjustment in the Option price per share. Any fractional Shares resulting from such adjustments shall be eliminated. All adjustments made by the Committee under this Section shall be conclusive. Notwithstanding the foregoing paragraph, the Committee reserves the right in the event of a sale of substantially all the Shares or property of the Company or the merger or consolidation of the Company into another corporation, or a dissolution or liquidation of the Company, to terminate the Options granted under the Plan prior to the times set forth in Section 5 of the Plan, in consideration of the payment to the Optionees of the difference between (a) and (b) where (a) equals (1) the then fair market value of the Option Shares to the extent vested and (b) equals the Option price of the Option Shares to the extent vested. SECTION 11. GENERAL RESTRICTION Notwithstanding anything contained herein or in any of the Agreements to the contrary, no purported exercise of any Option shall be effective without the written approval of the Company, which may be withheld to the extent that the exercise, either individually or in the aggregate together with the exercise of other previously exercised stock options and/or offers and sales pursuant to any prior or contemplated offering of securities, would, in the sole and absolute judgment of the Company, require the filing of a registration statement with the United States -7- 10 Securities and Exchange Commission or with the securities commission of any state or result in the Company's loss of status as an "S Corporation" within the meaning of Section 1361(a) of the Code. The Company shall avail itself of any exemptions from registration contained in applicable federal and state securities laws which are reasonably available to the Company on terms which, in its sole and absolute discretion, it deems reasonable and not unduly burdensome or costly. Each Optionee shall, prior to the exercise of an Option, deliver to the Company such information, representations and warranties as the Company may reasonably request in order for the Company to be able to satisfy itself that the Shares to be acquired pursuant to the exercise of an Option is being acquired in accordance with the terms of an applicable exemption from the securities registration requirements of applicable federal and state securities laws. SECTION 12. RIGHTS AS A STOCKHOLDER An Optionee or a transferee of an Option shall have no rights as a stockholder with respect to any Option or Option Shares until the date of the issuance of a stock certificate to him for the Option Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date the stock certificate is issued, except as otherwise provided in the Plan. IN WITNESS WHEREOF, the Company has caused the Plan to be executed on the ___ day of ______________1992. MELITA INTERNATIONAL CORPORATION By:_____________________________ Title:__________________________ ATTEST: _____________________________ Title: ______________________ (CORPORATE SEAL) -8- 11 MELITA INTERNATIONAL CORPORATION 1992 STOCK OPTION AGREEMENT THIS AGREEMENT is made as of the Date of Grant by and between MELITA INTERNATIONAL CORPORATION, a Georgia, U.S.A. corporation (the "Company"), and [Optionee] (the "Optionee"). Upon and subject to the Additional Terms and Conditions attached hereto and incorporated herein by reference as part of this Agreement, the Company hereby awards as of the Date of Grant to Optionee an option under the Melita International Corporation 1992 Stock Option Plan (the "Plan"), as described below, to purchase the Option Shares. Capitalized terms not defined or described have the meanings set forth in the Additional Terms and Conditions. A. Date of Grant: [Grant Date] ------------- B. Exercise Price: $[Exercise Price] per share -------------- C. Option Shares: All of any part of [Shares] shares of the Company's common stock ("Common ------------- Stock") D. Vesting Schedule: ----------------
Years of Service After Date of Grant Percentage of Option Shares Vested ------------------------------------ ---------------------------------- 0 0% 1 10% 2 20% 3 40% 4 75% 5 100%
The Optionee shall only receive credit for a year of service after the Date of Grant if he remains at all times a full-time Employee of the Company or an Affiliate (as reflected on the Company's or an Affiliate's business records), for the twelve (12) consecutive month period beginning on the first of January 1 or July 1 immediately following the Date of Grant. In the event the Optionee dies or becomes subject to a Disability while a full-time Employee (as reflected on the Company's or an Affiliate's business records), the Option shall be vested only to the extent the Optionee was vested in the Option as of his or her date of death or Disability. Except as provided in the following sentence, in the event the Optionee voluntarily terminates his or her employment with the Company, at any time prior to the date on which the Optionee would otherwise become one hundred percent (100%) vested in the Option pursuant to the vesting schedule set forth above, the Optionee shall forfeit all rights under the Option, including the previously vested percentage of the Option. Notwithstanding the foregoing, if a "Change of Control" (as defined below) occurs prior to the date on which the Optionee would become one hundred percent (100%) vested in the Option pursuant to the vesting schedule set forth above, and the Optionee voluntarily terminates employment with the Company after the date on which the Change of Control occurred, but prior to the date on which the Optionee would become one hundred percent (100%) vested in the Option according to the above vesting schedule, the Optionee shall forfeit only that portion of the Option in which the Optionee became vested after the date on which the Change of Control occurred. E. Contingent Grant: The effectiveness of this grant is expressly conditioned on the Optionee receiving credit (pursuant to D above) for a full year of service after the Date of Grant. If the Optionee does not receive such credit, this grant shall be null and void and without effect from the Date of Grant. 12 F. Exercise Period: The Option may be exercised as to the percentage of vested Option Shares determined according to the chart below during the Exercise Period which commences as shown in the chart below and ends at the close of business on the tenth anniversary of the Date of Grant.
Exercise Period Percentage Vested Option Shares --------------- ------------------------------- January 1, 2002 33-1/3% January 1, 2003 66-2/3% January 1, 2004 100%
Notwithstanding the foregoing, if there is a "Change of Control" (as defined below), the Exercise Period shall commence no later than the date fourteen (14) months after the date on which the Change of Control occurs as to one hundred percent (100%) of the vest Option Shares. For purposes of this Agreement, "Change of Control" means (i) any transaction, or series of related transactions occurring within a ninety (90) day period, whereby the beneficial ownership of fifty-one percent (51%) or more of the then outstanding common stock (or other securities having generally the right to vote for election of the Board of Directors) shall be sold, assigned or otherwise transferred, directly or indirectly, to one party, other than an existing shareholder or option holder, whether by sale or issuance of common stock or other securities or otherwise, (ii) any transaction, or series of related transactions occurring within a ninety (90) day period, whereby the Company shall sell, assign or otherwise transfer, directly or indirectly, assets (including stock or other securities of subsidiaries, but other than the grant of licenses to intangible assets in the ordinary course of business) having a fair market value of fifty-one percent (51%) or more of the total value of the assets of the Company to one party, other than an existing shareholder or option holder (or an Affiliate), or (iii) an initial public offering of the Company's common stock under the securities act of 1933, as amended (the "1933 Act"). Notwithstanding the above, the following shall not constitute a Change of Control: (a) with respect to subsection (ii) above only, any conveyance, transfer or grant to a bank or other financial institution of a collateral assignment of, security title to, or security interest, in any goods, accounts, inventory, general intangibles or other assets of the Company, or an Affiliate, to secure the obligations of the Company or an Affiliate, to such bank or other financial institution, or the exercise of any rights or remedies by such bank or other financial institution after a default of corporate indebtedness and corporate reorganizations where the resulting corporate entities are controlled by the current shareholders of the Company, or (b) any sale, assignment or other transfer, directly or indirectly, by an existing shareholder to, or for the benefit of, a member of the existing shareholder's family. IN WITNESS WHEREOF, the Company has executed and sealed this Agreement as of the Date of Grant set forth above. Melita International Corporation By: ------------------------------------- Aleksander Szlam Title: Chairman and CEO ATTEST: --------------------------------- Halina Szlam Title: Secretary (CORPORATE SEAL) OPTIONEE: ------------------------------- [Optionee] -2- 13 ADDITIONAL TERMS AND CONDITIONS OF MELITA INTERNATIONAL CORPORATION 1992 STOCK OPTION AGREEMENT 1. Definitions (a) "Affiliate" means (a) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as is the Company, and (b) any other trade or business (whether or not incorporated) controlling, controlled by, or under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with the Company. (b) "Disability" means a disability of an Optionee such that the Optionee is entitled to disability retirement benefits under the federal Social Security Act or such that the Optionee is entitled to recover benefits under any long-term disability plan or policy maintained by the Company or an Affiliate. The determination of whether a disability exists shall be made by the Committee and shall be substantiated by competent medical advice. (c) "Employee" means any person who is employed by the Company or an Affiliate for purposes of the Federal Insurance Contributions Act. (d) "Fair Market Value" means (1) the most recent price per share at which shares of Common Stock were sold in an arm's length transaction, if there has been any such transaction in the twelve-month period preceding the relevant time for determining Fair Market Value, or (2) if no such transaction has occurred or if such transaction has occurred but is deemed irrelevant by the Committee based on significant differences in circumstances, a price that the Committee determines in good faith reflects, as of the most recent fiscal year end of the Company unless the Committee determines there is a more recent valuation date, the value of an Option Share in light of relevant factors, including, without limitation, earnings, discounts reflective of minority ownership, restrictions on transfer, and the absence of a regular trading market for Common Stock, the value per Option Share at the relevant time as determined in good faith by the Committee. (e) "Option" means an option under the Melita International Corporation 1992 Stock Option Plan to purchase an Option Share. (f) "Option Shares" means the shares of Melita International Corporation common stock owned by the Optionee as a result of the Exercise of an Option. (g) "Termination for Cause" means a termination of the employment relationship between the Optionee and the Company or Affiliate due to any of the following reasons: (1) willful and continued failure (other than any such failure resulting from his incapacity during physical or mental illness) to substantially perform his duties with the Company or an Affiliate continuing 30 days after notice by the Company to the Optionee of such failure, (2) any act of fraud, misappropriation, dishonesty, embezzlement or similar conduct against the Company or an Affiliate, as finally determined through arbitration or final judgment 14 of a court of competent jurisdiction (which arbitration or judgment, due to the passage of time or otherwise, is not subject to further appeal); or (3) conviction of the Optionee for a felony or any other crime involving moral turpitude (which conviction, due to the passage of time or otherwise, is not subject to further appeal). 2. Term and Exercise of Option (a) Except as otherwise provided in this Agreement, Optionee shall have the right to exercise the Option from time to time during the Exercise Period defined previously in the Agreement with respect to all or any part of the vested Option Shares. (b) (1) As a condition to exercising this Option, Optionee must deliver to the President of the Company on any business day (A) written notice, signed by the person exercising the Option, specifying the number of Option Shares being exercised and, if required, making the representations and covenants in substantially the same form as provided in the Notice of Exercise, attached as Exhibit A hereto; (B) payment in cash or in shares of Common Stock that have been held by the Optionee for at least six months of the Purchase Price (defined in Section 3); (C) payment in cash of the tax withholding liability arising from the exercise; and (D) an executed shareholders' agreement, containing terms and conditions substantially similar to any shareholders' agreement executed by and applicable to the holders of a majority of the shares of Common Stock, if so required by the Committee. (2) In lieu of payment of all tax withholding by Optionee as provided above, Optionee may elect to have the number of Option Shares he is to receive upon exercise of an Option reduced by the smallest number of whole Option Shares which, when multiplied by the fair market value of the Shares determined as of the Tax Date (defined below), is sufficient to satisfy required federal, state, and local, if any, withholding taxes arising from exercise of the Option (a "Withholding Election"). An Optionee may make a Withholding Election only if all of the following conditions are met: (A) the Withholding Election must be made prior to the date on which the amount of tax required to be withheld is determined (the "Tax Date") by executing and delivering to the Company a properly completed Notice of Withholding Election, attached as Exhibit B hereto; (B) any Withholding Election made will be irrevocable; however, the Committee may at its sole discretion disapprove and give no effect to any Withholding Election; and (C) if the Optionee is required to file beneficial ownership reports pursuant to Subsection (a) of Section 16 of the Securities Exchange Act of 1934 (the "Act"), at any time during the period in which the Option is exercisable, then: (i) no Option to which any Withholding Election relates may be exercised until the earlier of either (I) one year after the Company has been subject to the reporting requirements of Section 15 of the Act and has filed all reports and -2- 15 statements required to be filed pursuant to that Section during that year, or (II) at least six months after the date of grant (except in the event of death or Disability of the Optionee prior to the expiration of the six month period); and (ii) the Withholding Election must be made either (I) at least six months prior the Tax Date, or (II) prior to the Tax Date and in any ten business day period beginning on the third business day following the release of the Company's quarterly or annual summary statement of sales and earnings. Upon receipt of such notice and payment in full of the Purchase Price and tax withholding liability, the Company shall cause to be issued a certificate representing the shares of Common Stock purchases. (c) Except as otherwise provided in this Agreement, the Option shall terminate on the earliest of (1) the last day of the Exercise Period; (2) the date the Committee exercises its right pursuant to Section 2(d) to terminate the Option; (3) if Optionee ceases to be an employee as a result of a Termination for Cause, the time of such termination; (4) if the Optionee engages to work in the USA within seven years following his termination of employment with the Company or an Affiliate, in any capacity directly or indirectly with any organization which directly or indirectly for itself or through or for others is involved in the same or a similar business as the Company's, which is designing, developing, manufacturing, marketing, selling, and/or providing services in connection with outbound predictive dialing and call management systems, the time of such engagement; or (5) if the Optionee uses, copies, reproduces, discloses, or otherwise disseminates any Confidential Information in any way that is not clearly necessary to perform his duties with the Company or an Affiliate, the time of such act; or (6) if the Optionee fails after his termination of employment with the Company or an Affiliate to deliver promptly to the Company all Confidential Information which he used, had, or controlled in connection with his employment with the Company or an Affiliate, the time of such failure. For purposes of this Agreement, "Confidential Information" means any information of any kind and in any form, whether tangible (e.g., written specifications or hardware) or intangible (e.g., software programs, business strategies, or ideas), used by or related to the Company or an Affiliate which is or could be economically valuable because it is not generally known (or could not be readily known by proper methods or means) by others who could otherwise derive economic value from it and which is the subject of reasonable efforts to keep it secret, and all reproductions, modifications, and other derivatives of such information, and any information received from a third party which the Company or an Affiliate has agreed to treat as confidential, such as information from customers, prospective customers, or vendors (e.g., International Business Machines Corporation, Oracle Corporation, and Dialogic Corporation). (d) Notwithstanding any other provision of this Agreement, the Committee reserves the right at all times to terminate the Option in consideration of the payment to the Optionee of the difference between (1) and (2) where (1) equals the Fair Market Value of the unexercised Option Shares to the extent vested and (2) equals the Purchase Price of the unexercised Option Shares to the extent vested. -3- 16 (e) The price paid by the Company shall be payable at the Company's option (1) by delivery to the Optionee of the entire price in the form of cash or check; or (2) by payment of four substantially equal annual installments, the first installment being due at the date of termination of the Option and the second, third and fourth installment being due on the first, second and third anniversaries of the date of termination of the Option, respectively. 3. Purchase Price. Optionee must pay to the Company the Exercise Price (subject to adjustment pursuant to Section 8) multiplied by the number of the Option Shares being acquired through the exercise of this Option (the "Purchase Price"). Shares of Common Stock tendered by the Optionee in satisfaction of the Purchase Price shall be credited at their Fair Market Value. 4. Non-Transferability of Option. Except for any transfer of the Option by bequest or inheritance, the Optionee shall not have the right to make or permit to exist any transfer or hypothecation, whether outright or as security, with or without consideration, voluntary or involuntary, of all or any part of any right, title or interest in the Option. Any such disposition not made in accordance with this Agreement shall be deemed null and void. The Option shall be exercisable during the lifetime of Optionee only by Optionee, and after his death by a legatee or legatees under Optionee's last will and testament or by his personal representative or representatives, who shall be bound by the same terms of this Agreement as apply to the Optionee. 5. Restrictions on Transfer of Option Shares. Except as provided in this Agreement or for any transfer of Option Shares by gift, bequest, or inheritance to the Optionee's or a subsequent shareholder's family member, estate, heirs, or legatees or for any transfer after the closing of an initial public offering of Common Stock, the Optionee shall not have the right to make or permit to exist any transfer or hypothecation, whether outright or as security, with or without consideration, voluntary or involuntary, of all or any part of any right, title or interest (including, but not limited to, voting rights) in or to any Option Shares. Any such disposition not made in accordance with this Agreement shall be deemed null and void. Any permitted transferee under this Section shall be bound by the same terms of this Agreement as apply to the Optionee. 6. No Rights as Shareholder. Optionee, or his permitted transferee under Section 4 shall have no rights as a stockholder with respect to any Option Shares until the issuance of a stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights on or with respect to Option Shares purchases pursuant to this Option for which the record date is prior to the date of exercise hereof, except as provided in Section 8 below. 7. Right to Repurchase Option Shares. (a) (1) At all times prior to the closing of an initial public offering of Common Stock, (2) within ninety (90) days following a Termination for Cause, or (3) at any time following an act described in Section 2(c)(4), or 2(c)(5) hereof or any failure described in Section 2(c)(6) hereof, the Company shall have the right to repurchase from the Optionee all Option Shares. For this purpose, a notice of exercise given by the Company to the Optionee -4- 17 pursuant to this Section 7 shall be effective to perfect the Company's right of repurchase, subject to the remaining provisions of this Section 7. (b) (1) The Company upon exercising this right of repurchase shall give written notice to the Optionee of the number of shares of Option Shares to be repurchased, of the repurchase price, which shall be determined pursuant to Section 7(c) hereof, and of the time and date of the closing of the repurchase of the Option Shares, which shall be no later than sixty (60) days from the date of the notice and shall be held at the principal office of the Company. At closing, the Company shall deliver the application portion of the repurchase price and the Optionee shall deliver the Option Shares to be repurchased duly endorsed for transfer and with all required revenue stamps attached, and the title to the Option Shares shall be transferred to the Company free and clear of all liens, claims, and encumbrances, however described, except for restrictions imposed by applicable securities laws. (2) If the Company decides to repurchase less than all of the Option Shares owned by the Optionee, the Company shall employ such method as it shall deem appropriate in determining the number of Option Shares to be repurchased. (3) The price for Option Shares repurchased by the Company shall be payable by delivery to the Optionee at the closing of the entire repurchase price in the form of cash or check; provided, however, except for repurchases pursuant to written notice given within ninety (90) days following a Termination for Cause or repurchases following any act described in Section 2(c)(4) or 2(c)(5) hereof or any failure described in Section 2(c)(6) hereof, the Company may pay the entire repurchase price in four substantially equal annual installments consisting of principal and interest at the "Prime Rate" reported in the Wall Street Journal on the first business day preceding the date of repurchase, the first installment being due at the closing and the second, third, and fourth installment being due on the first, second, and third anniversaries of the closing, respectively. (4) If the Optionee fails to consummate the sale or deliver the Option Shares certificates properly assigned when requested to do so, the Company, or its designee, shall cancel the Option Shares certificates of the Optionee and deposit the payment pursuant to Section 7(b)(3) hereof which was to be made to the Optionee in exchange for the certificates to the credit or account of the Optionee in escrow with any clearinghouse bank in the City of Atlanta, Georgia, at the expense and risk of the Optionee, or his successors or assigns, whereupon the Company shall treat the Option Shares represented thereby as having been repurchased by the Company or its designees. (c) The repurchase price for each Option Share shall be an amount equal to the Fair Market Value, except if the Option Shares are repurchased by the Company (1) pursuant to written notice given within ninety days following a Termination for Cause, in which case the repurchase price for each Option -5- 18 Share shall be the lowest of Fair Market Value, book value per share of Common Stock as most recently determined by the Committee, or the Exercise Price paid by the Optionee, or (2) following any act described in Section 2(c)(4) or 2(c)(5) hereof or failure described in Section 2(c)(6) hereof, in which case the repurchase price for each Option Share shall be the lower of (A) Fair Market Value or (B) the greater of (i) the Exercise Price paid by the Optionee or (ii) book value per share of Common Stock as most recently determined by the Committee. 8. Change in Capitalization. Subject to the Committee's right to terminate the Option pursuant to Section 2(d) of this Agreement, the total number of Option Shares to be received upon exercise of the Option (both as to the number of Option Shares and the Purchase Price) shall be appropriately adjusted for any change in par value, split-up, stock split, reverse stock split, reclassification, merger, consolidation, distribution of stock dividends or similar capital adjustments, to the end that the Optionee's proportionate interest in value shall be maintained as before the occurrence of the event. The adjustment shall be made without change in the total price applicable to the unexercised portion of the Option and with a corresponding adjustment in the Exercise Price. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Committee in its sole discretion. Any adjustment may provide for the elimination of any fractional Option Shares. 9. Governing Laws. This Agreement part shall be construed, administered and enforced according to the laws of the State of Georgia, USA; provided, however, the Option may not be exercised except, in the reasonable judgment of the Board of Directors, in compliance with exemptions under applicable state securities laws of the state in which Optionee resides, and/or any other applicable securities laws. 10. Successors. This Agreement shall inure to the benefit of the heirs, legal representatives, successors and permitted assigns of the Company and Optionee. 11. Notice. Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, addressed as follows: to the President of the Company, or to the Company (attention of the President), at 5051 Peachtree Corners Circle, Norcross, Georgia USA 30092-2500, or at any other address as the Company, by notice to Optionee, may designate in writing from time to time; to Optionee, at Optionee's address as shown on the records of the Company, or at any other address as Optionee, by notice to the Company, may designate in writing from time to time. 12. Severability. In the event that any one or more of the provisions or portion thereof contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of this Agreement, and this Agreement shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein. 13. Entire Agreement. Subject to the terms and conditions of the Melita International Corporation 1992 Stock Option Plan, which is incorporated herein by reference, this Agreement expresses the entire understanding and agreement of the parties hereto with respect to such terms, restrictions and limitations. -6- 19 14. Headings. Section headings used herein are for convenience of reference only and shall not be considered in construing this Agreement. 15. Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the party or parties who are thereby aggrieved shall have the right to specific performance and injunction in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. 16. Resolution of Disputes. Any determination or interpretation by the Committee shall be final, binding and conclusive on all persons affected thereby. 17. Compliance with Securities Laws and Tax Laws. Notwithstanding anything contained herein to the contrary, no purported exercise of the Option shall be effective without the written approval of the Company, which may be withheld to the extent that its exercise, either individually or in the aggregate together with the exercise of other previously exercised stock options and/or offers and sales pursuant to any prior or contemplated offering of securities, would, in the sole and absolute judgment of the Company, require the filing of a registration statement with the United States Securities and Exchange Commission, or with the securities commission of any state or result in the Company's loss of status as an "S Corporation" within the meaning of Section 1361(a) of the Internal Revenue Code. The Company shall avail itself of any exemptions from registration contained in applicable federal and state securities laws which, in its sole and absolute discretion, it deems reasonable and not unduly burdensome or costly. The Optionee shall deliver to the Company, prior to the exercise of the Option, such information, representations and warranties as the Company may request in order for the Company to be able to satisfy itself that the Common Stock to be acquired pursuant to the exercise of the Option is being acquired in accordance with the terms of an applicable exemption from the securities registration requirements of applicable federal and state securities laws. In the event that the exercise of the Option is withheld for more than 180 days pursuant to the preceding paragraph, the Committee shall be required to terminate the Option in accordance with the provisions of Sections 2(d) and 2(e) hereof. ***** -7- 20 EXHIBIT A NOTICE OF EXERCISE OF STOCK OPTION TO PURCHASE COMMON STOCK OF MELITA INTERNATIONAL CORPORATION Name -------------------------- Address ----------------------- ------------------------------ Date -------------------------- Melita International Corporation Attention: President 5051 Peachtree Corners Circle Norcross, Georgia USA 30092-2500 Re: Exercise of Non-Qualified Stock Option Gentlemen: Subject to acceptance hereof in writing by Melita International Corporation (the "Company") pursuant to the provisions of the Melita International Corporation 1992 Stock Option Plan (the "Plan"), I hereby give at least ten days, but not more than thirty days, prior notice of my election to exercise options granted to me to purchase _____ shares of Common Stock of the Company under the Melita International Corporation 1992 Stock Option Agreement granted on __________________________ (the "Agreement"). The purchase shall take place as of _______________, 19___ (the "Effective Date"). On or before the Exercise Date, I will pay the applicable purchase price as follows: [ ] by delivery of a certified check for the full purchase price payable to the order of Melita International Corporation. [ ] by delivery of a certified check for $__________ representing a portion of the purchase price to the order of Melita International Corporation with the balance to consist of shares of Common Stock that I have owned for at least six months and that are represented by a stock certificate, I will surrender to the Company with my endorsement. If the number of shares of Common Stock represented by such stock certificate exceeds the number to be applied against the purchase price, I understand that a new stock certificate will be issued to me reflecting the excess number of shares. [ ] by delivery of a stock certificate representing shares of Common Stock that I have owned for at least six months which I will surrender to the Company with my endorsement as payment of the purchase price. If the number of shares of Common Stock represented by such EXHIBIT A to Stock Option Agreement 21 certificate exceeds the number to be applied against the purchase price, I understand that a new certificate will be issued to me reflecting the excess number of shares. The required federal, state and local income tax withholding, if any, on the exercise of the option shall be paid in cash on or before the Exercise Date. Covenants and Representations of Optionee. Optionee represents, warrants, covenants, and agrees with the Company as follows as of the date of exercising the Option: (a) The Option is being exercised for Optionee's own account without the participation of any other person, with the intent of holding the Option Shares issuable pursuant thereto for investment and without the intent of participating, directly or indirectly, in a distribution of the Option Shares and not with a view to, or for resale in connection with, any distribution of the Option Shares or any portion thereof; (b) Optionee is not acquiring the Option Shares based upon any representation, oral or written, by any person with respect to the future value of, or income from, the Option, but rather upon an independent examination and judgment as to the prospects of the Company; (c) Optionee has received a copy of the Plan, is familiar with the business and affairs of the Company, and realizes that the receipt of the Option Shares is a speculative investment and that any possible profit therefrom is uncertain; (d) Optionee has had the opportunity to ask questions of and receive answers from the Company and any person acting on its behalf and to obtain all information available with respect to the Plan, the Company and its affairs, and has received all information and data with respect to the Plan and the Company that he has requested and which he has deemed relevant in connection with his receipt of the Option and the Option Shares subject thereto; (e) Optionee is able to bear the economic risk of the investment, including the risk of a complete loss of his investment, and Optionee acknowledges that he must continue to bear the economic risk of the investment in the Option Shares received upon Option exercise for an indefinite period; (f) Optionee understands and agrees that the Option Shares subject to the Option may be issued and sold to Optionee without registration under any state or federal law relating to the registration of securities for sale, and in that event will be issued and sold in reliance on exemptions from registration under appropriate state and federal laws; (g) The Option Shares issued to Optionee upon exercise of the Option will not, subject to any other applicable restrictions set forth in the Plan or the Agreement, be offered for sale, sold or transferred by Optionee other than pursuant to: (1) an effective registration under applicable state securities laws or in a transaction which is otherwise in compliance with those laws; EXHIBIT A to Stock Option Agreement -2- 22 (2) an effective registration under the Securities Act of 1933 (the "1933 Act"), or a transaction otherwise in compliance with the 1933 Act; and (3) evidence satisfactory to the Company of compliance with the applicable securities laws. The Company shall be entitled to rely upon an opinion of counsel satisfactory to it with respect to the compliance with the foregoing laws. (h) The Company will be under no obligation to register the Option Shares issuable pursuant to the Option or to comply with any exemption available for sale of the Option Shares by the Optionee without registration, and the Company is under no obligation to act in any manner so as to make Rule 144 promulgated under the 1933 Act available with respect to sale of the Option Shares by the Optionee. (i) A legend indicating that the Option Shares issued pursuant to the Option has not been registered under the applicable securities laws and referring to any applicable restrictions on transferability and sale of the Option Shares may be placed on the certificate or certificates delivered to Optionee and any transfer agent of the Company may be instructed to require compliance therewith; As soon as the stock certificate is registered in my name, please deliver it to me at the above address. Very truly yours, ---------------------------------------- Legal Signature AGREED TO AND ACCEPTED MELITA INTERNATIONAL CORPORATION By: ----------------------------- Title: -------------------------- Number of Shares Exercised: ----- Number of Shares Remaining: DATE: ----- ----------------------- EXHIBIT A to Stock Option Agreement -3- 23 EXHIBIT B NOTICE OF WITHHOLDING ELECTION Name -------------------------- Address ----------------------- ------------------------------ Date -------------------------- Social Security No. ----------- Melita International Corporation Attention: President 5051 Peachtree Corners Circle Norcross, Georgia USA 30092-2500 This election relates to the Option defined in Paragraph 3 below. I hereby certify that: (1) My correct name and social security number and my current address are set forth at the end of this document. (2) I am (check one, whichever is applicable). [ ] the original recipient of the Option. [ ] the legal representative of the estate of the original recipient of the Option. [ ] a legatee of the original recipient of the Option. [ ] the legal guardian of the original recipient of the Option. (3) The Option pursuant to which this election is made is dated _________________ and was issued under the Melita International Corporation 1992 Stock Option Agreement dated the ___ day of ________________, 19__ (the "Agreement") in the name of _________________ for ________ Shares. This election relates to __________ Shares issuable upon whole or partial exercise(s) of the Option (the "Option Shares"); provided that the numbers set forth above shall be deemed changed as appropriate to reflect stock splits and other adjustments contemplated by the applicable Agreement provisions. (4) In connection with any future exercise of the Option with respect to the Option Shares, I hereby elect to have certain of the Option Shares issuable pursuant to the exercise withheld by the Company for the purpose of having the value of the Option Shares applied to pay federal, state, and local, if any, taxes arising from the exercise. The Option Shares to be withheld shall have, as of the Tax Date applicable to the exercise, a fair market value equal to the minimum statutory tax withholding requirement under federal, state, and local law in connection with the exercise. EXHIBIT B to Stock Option Agreement 24 (5) This Withholding Election is made prior to the Tax Date and is otherwise made pursuant to Section 2 of the Agreement. (6) I understand that this Withholding Election may not be revised, amended or revoked by me but is subject to the disapproval of the Board of Directors. (7) I further understand that, if this Withholding Election is not disapproved by the Board of Directors, the Company shall withhold from the Option Shares a number of Option Shares having the value specified in Paragraph 4 above. (8) The Agreement has been made available to me by the Company, I have read and understand the Agreements and I have no reason to believe that any of the conditions therein to the making of this Withholding Election have not been met. Capitalized terms used in this Notice of Withholding Election without definition shall have the meanings given to them in the Agreement. Very truly yours, ---------------------------------- Legal Signature AGREED TO AND ACCEPTED MELITA INTERNATIONAL CORPORATION By: ----------------------------- Title: -------------------------- Number of Shares Exercised: ----- Number of Shares Remaining: Date: ----- --------------------- EXHIBIT B to Stock Option Agreement -2- 25 SECOND AMENDMENT TO 1992 DISCOUNTED STOCK OPTION PLAN THIS SECOND AMENDMENT (this "Amendment") to the 1992 Discounted Stock Option Plan, as amended (the "Plan"), is made and entered as of the 1st day of March, 1997, by Melita International Corporation (the "Company"). WHEREAS, the Company desires to correct a provision of the Plan which would otherwise result in unfavorable accounting consequences to the Company following its initial public offering; NOW, THEREFORE, the Company hereby amends the Plan as follows: 1. The first sentence Section 7(a) of the Additional Terms and Conditions of the Plan is hereby amended to read as follows: (a) At all times prior to the closing of an initial public offering of Common Stock, but not thereafter, the Company shall have the right to repurchase from the Optionee all Option Shares. 2. Except as specifically amended hereby, the Plan shall remain in full force and effect. Nevertheless, this Amendment shall be deemed to modify the terms and conditions of all existing options granted under the Plan. IN WITNESS THEREOF, this Amendment is executed on behalf of the Company as of the date first written above. MELITA INTERNATIONAL CORPORATION By: /s/ Aleksander Szlam ------------------------------------ Aleksander Szlam Chairman of the Board and Chief Executive Officer EX-10.3 9 1997 STOCK OPTION PLAN 1 EXHIBIT 10.3 MELITA INTERNATIONAL CORPORATION 1997 STOCK OPTION PLAN SECTION 1. PURPOSE The purpose of this Plan is to promote the interests of the Company by granting Options to purchase Shares to Employees and Key Persons in order to attract and retain Employees and Key Persons by providing an additional incentive to work to increase the value of Shares and a stake in the future of the Company which corresponds to the stake of each of the Company's shareholders. SECTION 2. DEFINITIONS Each term set forth in this Section 2 shall have the meaning set forth opposite such term for purposes of this Plan and, for purposes of such definitions, the singular shall include the plural and the plural shall include the singular, and reference to one gender shall include the other gender. 2.1 BOARD means the Board of Directors of the Company. 2.2 CODE means the Internal Revenue Code of 1986, as amended. 2.3. COMMITTEE means the Committee appointed in Section 5. 2.4 COMMON STOCK means the common stock of the Company, no par value per share. 2.5 COMPANY means Melita International Corporation, a Georgia corporation, and any successor to such organization. 2.6 CONTINUOUS SERVICE means a period of continuous performance of services by an Employee or Key Person for the Company, a Subsidiary or a Parent. 2.7 EMPLOYEE means an employee of the Company, a Subsidiary or a Parent. 2.8 EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. 2.9 EXERCISE PRICE means the price which shall be paid to purchase one (1) Share upon the exercise of an Option granted under this Plan. 2.10 EXISTING PERSON means (a) a shareholder or holder of any option or warrant of the Company as of the effective date of the Plan or (b) any lineal descendant or antecedent, father, mother, spouse, brother, or sister of such shareholder or option or warrant holder or (c) a partnership, corporation, limited liability company, trust or other entity formed primarily for the benefit of any of the foregoing. 2.11 FAIR MARKET VALUE of each Share on any date means the price determined below on the last business day immediately preceding the date of valuation: 2 (a) The closing sales price per Share, regular way, or in the absence thereof the mean of the last reported bid and asked quotations, on such date on the exchange having the greatest volume of trading in the Shares during the thirty-day period preceding such date (or if such exchange was not open for trading on such date, the next preceding date on which it was open); or (b) If there is no price as specified in (a), the final reported sales price per Share, or if not reported, the mean of the closing high bid and low asked prices in the over-the-counter market for the Shares as reported by the National Association of Securities Dealers Automatic Quotation System, or if not so reported, then as reported by the National Quotation Bureau Incorporated, or if such organization is not in existence, by an organization providing similar services, on such date (or if such date is not a date for which such system or organization generally provides reports, then on the next preceding date for which it does so); or (c) If there also is no price as specified in (b), the price per Share determined by the Board by reference to bid-and-asked quotations for the Shares provided by members of an association of brokers and dealers registered pursuant to Subsection 15(b) of the Exchange Act, which members make a market in the Shares, for such recent dates as the Board shall determine to be appropriate for fairly determining current market value; or (d) If there also is no price as specified in (c), an amount per Share determined in good faith by the Board to be the price at which the Committee acting in good faith determines through any reasonable valuation method that a Share might change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts. The Fair Market Value may be based on the most recent valuation of the Company performed by the Company's auditors or by other professionals retained to value the Company. 2.12 INITIAL PUBLIC OFFERING means the first offering of Common Stock for sale by the Company pursuant to a registration statement filed in accordance with the 1933 Act or any comparable law then in effect. 2.13 ISO means an option granted under this Plan to purchase Shares which is intended by the Company to satisfy the requirements of Code Section 422 as an incentive stock option. 2.14 KEY PERSON means (i) a member of the Board who is not an Employee, (ii) a consultant, distributor or other person who has rendered valuable services to the Company, a Subsidiary or a Parent, (iii) a person who has incurred, or is willing to incur, financial risk in the form of guaranteeing or acting as co-obligor with respect to debts or other obligations of the Company, or (iv) a person who has extended credit to the Company. Key Persons are not limited to individuals and, subject to the preceding definition, may include corporations, partnerships, associations and other entities. 2.15 NON-ISO means an option granted under this Plan to purchase Shares which is not intended by the Company to satisfy the requirements of Code Section 422. 2.16 OPTION means an ISO or a Non-ISO. 2.17 OPTIONEE means any grantee of an Option. -2- 3 2.18 PARENT means any corporation which is a parent of the Company (within the meaning of Code Section 424). 2.19 PLAN means the Melita International Corporation 1997 Stock Option Plan, as amended from time to time. 2.20 SHARE means a share of the Common Stock of the Company. 2.21 STOCK OPTION GRANT means the written agreement or instrument which sets forth the terms of an Option granted to an Employee or Key Person under this Plan. 2.22 SUBSIDIARY means any corporation which is a subsidiary of the Company (within the meaning of Code Section 424(f)). 2.23 SURRENDERED SHARES means the Shares described in Section 11.2 which (in lieu of being purchased) are surrendered for cash or Shares, or for a combination of cash and Shares, in accordance with Section 11. 2.24 TEN PERCENT SHAREHOLDER means a person who owns (after taking into account the attribution rules of Code Section 424(d)) more than ten percent (10%) of the total combined voting power of all classes of shares of either the Company, a Subsidiary or a Parent. 2.25 1933 ACT means the Securities Act of 1933, as amended. SECTION 3. SHARES SUBJECT TO OPTIONS 1,350,000 Shares of Common Stock, less the number of Shares (a) which have been issued pursuant to exercised grants made under the Melita International Corporation 1992 Discounted Stock Option Plan, or (b) which are subject to options granted which remain outstanding under the Melita International Corporation 1992 Discounted Stock Option Plan, shall be reserved for issuance under this Plan. Such Shares shall be reserved, to the extent that the Company deems appropriate, from authorized but unissued Shares, and from Shares which have been reacquired by the Company. Furthermore, any Shares subject to an Option which remain unissued after the cancellation, expiration or exchange of such Option thereafter shall again become available for use under this Plan, and any Shares subject to an option granted under the Melita International Corporation 1992 Discounted Stock Option Plan which remain unissued after the cancellation, expiration or exchange of such option thereafter shall become available for use under this Plan. Notwithstanding the above, any Surrendered Shares which remain after the surrender of an Option under Section 11 shall not again become available for use under this Plan. SECTION 4. EFFECTIVE DATE The effective date of this Plan shall be February 6, 1997, provided, the shareholders of the Company approve this Plan within twelve (12) months after such effective date. If such effective date comes before such shareholder approval, any Options granted under this Plan before the date of such approval automatically shall be granted subject to such approval. -3- 4 SECTION 5. COMMITTEE This Plan shall be administered by the Committee appointed by the Board. The Committee acting in its absolute discretion shall exercise such powers and take such action as expressly called for under this Plan and, further, the Committee shall have the power to interpret this Plan and (subject to Section 15) to take such other action in the administration and operation of this Plan as the Committee deems equitable under the circumstances. The Committee's actions shall be binding on the Company, on each affected Employee or Key Person, and on each other person directly or indirectly affected by such actions. Notwithstanding anything else to the contrary herein, the Board shall have the authority and the final and conclusive decision to assume the powers and responsibilities outlined above with respect to the Committee, in whole or in part. SECTION 6. ELIGIBILITY Except as provided below, only Employees shall be eligible for the grant of Options under this Plan, but no Employee shall have the right to be granted an Option under this Plan merely as a result of his or her status as an Employee. Key Persons may be eligible, subject to written approval by the Board, for the grant of Options under this Plan, but only if the Key Person has provided valuable services to the Company, a Subsidiary or a Parent and only if the Option is a Non-ISO. SECTION 7. GRANT OF OPTIONS The Committee, acting pursuant to the procedure established by the Board, shall either have the right to grant Options under this Plan, or recommend to the Board that Options be granted under this Plan. In accordance with the procedure established by the Board, the Committee, in its absolute discretion, shall have the right to grant Options under this Plan from time to time to purchase Shares and, further, shall have the right to grant new Options in exchange for outstanding Options. Such Options shall be granted to Employees or Key Persons selected by the Committee, acting in its discretion as set forth above, and neither the Board nor the Committee shall be under any obligation whatsoever to grant Options to all Employees or Key Persons, or to grant all Options subject to the same terms and conditions. Each grant of an Option shall be evidenced by a Stock Option Grant and each Stock Option Grant shall: 1. specify whether the Option is an ISO or Non-ISO; and 2. incorporate such other terms and conditions as the Committee, acting in its absolute discretion, deems consistent with the terms of this Plan, including (without limitation) a restriction on the number of Shares subject to the Option which first become exercisable or subject to surrender during any calendar year. In determining Employee(s) or Key Person(s) to whom an Option shall be granted and the number of Shares to be covered by such Option, the Committee may take into account the recommendations of the President of the Company and its other officers, the duties of the Employee or Key Person, the present and potential contributions of the Employee or Key Person to the success of the Company, the anticipated number of years of service remaining before the attainment by the Employee of retirement age, and other factors deemed relevant by the Committee, in its sole discretion, in connection with -4- 5 accomplishing the purpose of this Plan. An Employee or Key Person who has been granted an Option to purchase Shares of the Company, whether under this Plan or otherwise, may be granted one or more additional Options. If the Committee grants an ISO and a Non-ISO to an Employee on the same date, the right of the Employee to exercise or surrender one such Option shall not be conditioned on his or her failure to exercise or surrender the other such Option. SECTION 8. EXERCISE PRICE If an Option is an ISO, the Exercise Price for each Share subject to such Option shall be no less than the Fair Market Value of a Share on the date such Option is granted or, if such Option is granted to a Ten Percent Shareholder, the Exercise Price for each Share subject to such Option shall be no less than 110% of the Fair Market Value of a Share on the date such Option is granted. If an Option is a Non-ISO, the Exercise Price for each Share shall be no less than the minimum price required by applicable state law, or by the Company's governing instrument, or $0.01, whichever price is greater. The Exercise Price shall be payable in full in cash upon the exercise of any Option. SECTION 9. EXERCISE PERIOD Each Option granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the related Stock Option Grant, but no Stock Option Grant shall: 1. make an Option exercisable before the date (a) such Option is granted; or (b) on which the Employee or Key Person to whom the Option is granted shall have completed 12 months of Continuous Service following the date of grant plus, for any person who has not continuously performed services for the Company, a Parent or a Subsidiary for at least six months prior to the date of grant, an additional number of months equal to the difference between (i) six months and (ii) the number of months of Continuous Service prior to the date of grant; or 2. make an Option exercisable after the earlier of the: (a) date such Option is exercised in full, or (b) date which is the tenth (10th) anniversary of the date such Option is granted, if such Option is a Non-ISO or an ISO granted to a non-Ten Percent Shareholder, or the date which is the fifth (5th) anniversary of the date such Option is granted, if such Option is an ISO granted to a Ten Percent Shareholder. A Stock Option Grant may provide for the exercise of an Option after the employment of an Employee has terminated for any reason whatsoever, including death or disability. The Committee shall have the right, in its discretion, to accelerate the time during which any Option may be exercised and to include in a Stock Option Grant provisions that will automatically trigger acceleration of the time during which an Option may be exercised, including, without limitation, a Change of Control, as described in Section 17 hereinbelow. -5- 6 The Committee shall have the right, in its sole discretion, to condition the vesting and exercisability of all or any portion of an Option upon an Employee's successful attainment of annual or other periodic performance objectives, as set forth in the Stock Option Grant. SECTION 10. NONTRANSFERABILITY No Option granted under this Plan shall be transferable by an Employee or Key Person other than by will or by the laws of descent and distribution, and such Option shall be exercisable during an Employee's or Key Person's lifetime only by the Employee or Key Person, as the case may be. The person or persons to whom an Option is transferred by will or by the laws of descent and distribution thereafter shall be treated as the Employee or Key Person. SECTION 11. SURRENDER OF OPTIONS 11.1 GENERAL RULE. Only until the occurrence of an Initial Public Offering, the Committee, acting in its absolute discretion, may incorporate a provision in a Stock Option Grant to allow an Employee or Key Person to surrender his or her Option in whole or in part in lieu of the exercise in whole or in part of that Option on any date that: 1. the Fair Market Value of the Shares subject to such Option exceeds the Exercise Price for such Shares; and 2. the Option to purchase such Shares is otherwise exercisable. 11.2 PROCEDURE. The surrender of an Option in whole or in part shall be effected by the delivery of the Stock Option Grant to the Committee, together with a statement signed by the Employee or Key Person which specifies the number of Shares ("Surrendered Shares") as to which the Employee or Key Person surrenders his or her Option and how he or she desires payment be made for such Surrendered Shares. 11.3 PAYMENT. An Employee or Key Person in exchange for his or her Surrendered Shares shall receive a payment in cash or in Shares, or in a combination of cash and Shares, equal in amount on the date such surrender is effected to the excess of the Fair Market Value of the Surrendered Shares on such date over the Exercise Price for the Surrendered Shares. The Committee, acting in its absolute discretion, can approve or disapprove an Employee's or Key Person's request for payment in whole or in part in cash and can make that payment in cash, in shares or in such combination of cash and Shares as the Committee deems appropriate. A request for payment only in Shares shall be approved and made in Shares to the extent payment can be made in whole Shares and (at the Committee's discretion) in cash in lieu of any fractional Shares. 11.4 RESTRICTIONS. Any Stock Option Grant which incorporates a provision to allow an Employee or Key Person to surrender his or her Option in whole or in part also shall incorporate such additional restrictions on the exercise or surrender of such Option as the Committee deems necessary to satisfy the conditions to the exemption under Rule 16b-3 (or any successor exemption) to Section 16(b) of the Exchange Act. Notwithstanding any other provision of the Plan of a Stock Option Grant, no provision permitting the surrender of an Option shall be enforceable or of any force and effect upon the occurrence of an Initial Public Offering. -6- 7 SECTION 12. SECURITIES REGISTRATION Each Stock Option Grant may provide that, upon the receipt of Shares as a result of the surrender or exercise of an Option, the Employee or Key Person shall, if so requested by the Company, hold such Shares for investment and not with a view of resale or distribution to the public and, if so requested by the Company, shall deliver to the Company a written statement satisfactory to the Company to that effect. Each Stock Option Grant may also provide that, if so requested by the Company, the Employee or Key Person shall make a written representation to the Company that he or she will not sell or offer to sell any of such Shares unless a registration statement shall be in effect with respect to such Shares under the 1933 Act, and any applicable state securities law or, unless he or she shall have furnished to the Company an opinion, in form and substance satisfactory to the Company, of legal counsel acceptable to the Company, that such registration is not required. Certificates representing the Shares issued upon the exercise or surrender of an Option granted under this Plan may at the discretion of the Company bear a legend to the effect that such Shares have not been registered under the 1933 Act or any applicable state securities law and that such Shares may not be sold or offered for sale in the absence of an effective registration statement as to such Shares under the 1933 Act and any applicable state securities law or an opinion, in form and substance satisfactory to the Company, of legal counsel acceptable to the Company, that such registration is not required. SECTION 13. LIFE OF PLAN No Option shall be granted under this Plan on or after the earlier of: 1. the tenth (10th) anniversary of the effective date of this Plan (as determined under Section 4 of this Plan), in which event this Plan otherwise thereafter shall continue in effect until all outstanding Options have been surrendered or exercised in full or no longer are exercisable, or 2. the date on which all of the Shares reserved under Section 3 of this Plan have (as a result of the surrender or exercise of Options granted under this Plan) been issued or no longer are available for use under this Plan, in which event this Plan also shall terminate on such date. SECTION 14. ADJUSTMENT The number of Shares reserved under Section 3 of this Plan, and the number of Shares and other securities and property subject to Options granted under this Plan, and the Exercise Price of such Options shall be adjusted by the Committee in an equitable manner to reflect any change in the capitalization of the Company, including, but not limited to, such changes as stock dividends or stock splits. Furthermore, the Committee shall have the right to adjust (in a manner which satisfies the requirements of Code Section 424(a)) the number of Shares reserved under Section 3 of this Plan, and the number of Shares subject to Options granted under this Plan, and the Exercise Price of such Options in the event of any corporate transaction described in Code Section 424(a) which provides for the substitution or assumption of such Options. If any adjustment under this Section 14 creates a fractional Share or a right to acquire a fractional Share, such fractional Share shall be disregarded, and the number of Shares -7- 8 reserved under this Plan and the number subject to any Options granted under this Plan shall be the next lower number of Shares, rounding all fractions downward. An adjustment made under this Section 14 by the Committee shall be conclusive and binding on all affected persons and, further, shall not constitute an increase in the number of Shares reserved under Section 3 of this Plan. SECTION 15. SALE OR MERGER OF THE COMPANY If the Company agrees to sell all or substantially all of its assets for cash or property, or for a combination of cash and property, or agrees to any merger, consolidation, reorganization, division or other transaction in which Shares are converted into another security or into the right to receive securities or property and such agreement does not provide for the assumption of or substitution for the Options granted under this Plan, each Option at the direction and discretion of the Committee, or as is otherwise provided in the Stock Option Grants, may be canceled unilaterally by the Company in exchange for the vested whole Shares (or, subject to satisfying the conditions to the exemption under Rule 16b-3 or any successor exemption to Section 16(b) of the Exchange Act, for the whole Shares and the cash in lieu of a fractional Share) which each Employee or Key Person otherwise would receive if he or she exercised the vested portion of his or her outstanding Option on a date immediately preceding such sale or other corporate transaction, any such exchange to be made only upon the payment of the Exercise Price for such outstanding Options. SECTION 16. AMENDMENT OR TERMINATION This Plan may be amended by the Committee from time to time to the extent that the Committee deems necessary or appropriate; provided, however, no such amendment shall be made absent the approval of the shareholders of the Company (1) to increase the number of Shares reserved under Section 3 except as set forth in Section 14, (2) to extend the maximum life of the Plan under Section 13 or the maximum exercise period under Section 9, (3) to decrease the minimum Exercise Price under Section 8, or (4) to change the designation of Employees or Key Persons eligible for Options under Section 6. The Committee also may suspend the granting of Options under this Plan at any time and may terminate this Plan at any time; provided, however, the Company shall not have the right to modify, amend or cancel any Option granted before such suspension or termination unless (1) the Employee or Key Person consents in writing to such modification, amendment or cancellation or (2) there is a dissolution or liquidation of the Company or a transaction described in Section 14 or Section 15 of this Plan. SECTION 17. CHANGE OF CONTROL For purposes of this Plan and documents evidencing Options granted pursuant to this Plan, a "Change of Control" of the Company shall be deemed to have occurred if one of the following events takes place: 1. Any person other than an Existing Person becomes a holder of record, as reflected on the stock transfer ledger of the Company, of securities of the Company representing a right of the person, acting individually and not in concert with any other party (and not acting through a contract, arrangement, understanding, relationship, proxy, voting trust, voting agreement, or other device), to vote more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; -8- 9 2. A person other than an Existing Person obtains the right to elect a majority of the members of the Board of Directors of the Company, but not including any such right granted solely pursuant to a proxy solicited by the Board of Directors of the Company; 3. The Company or any of its subsidiaries shall sell, assign or otherwise transfer, directly or indirectly, assets (including stock or other securities of subsidiaries, but other than the grant of licenses to intangible assets in the ordinary course of business) having a fair market value of sixty-six percent (66%) or more of all the assets of the Company and its subsidiaries to any third party, other than a wholly-owned subsidiary of the Company; or 4. Any person other than an Existing Person becomes a beneficial owner (as such term is used in Rule 13d-3 under the Exchange Act) of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities, as determined for purposes of the election of members of the Board of Directors of the Company. Notwithstanding the above, no Change of Control shall be deemed to occur solely as the result of the issuance of new securities pursuant to (a) an Initial Public Offering or (b) the exercise of warrants and options granted and outstanding as of the effective date of the Plan. In addition, a Change of Control shall not, solely with respect to Section 17, Subsection 3 above, be deemed to occur as a result of any conveyance, transfer or grant to a bank or other financial institution of a collateral assignment of, securities title to or security interest in any goods, accounts, inventory, general intangibles or other assets of the Company or any of its subsidiaries to secure the obligations of the Company or any of its subsidiaries to such bank or other financial institution, or the exercise of any rights or remedies by such bank or other financial institution relation thereto. SECTION 18. MISCELLANEOUS 18.1 SHAREHOLDER RIGHTS. No Employee or Key Person shall have any rights as a shareholder of the Company as a result of the grant of an Option to him or to her under this Plan or his or her exercise or surrender of such Option pending the actual delivery of Shares subject to such Option to such Employee or Key Person. 18.2 NO CONTRACT OF EMPLOYMENT. The grant of an Option to an Employee or Key Person under this Plan shall not constitute a contract of employment or other contract relating to the performance of any services by the Employee or Key Person and shall not confer on an Employee or Key Person any rights upon his or her termination of employment or other relationship in addition to those rights, if any, expressly set forth in the Stock Option Grant which evidences his or her Option. 18.3 WITHHOLDING. The exercise or surrender of any Option granted under this Plan shall constitute an Employee's or Key Person's full and complete consent to whatever action the Committee directs to satisfy the federal and state tax withholding requirements, if any, which the Committee in its discretion deems applicable to such exercise or surrender. -9- 10 18.4 TRANSFER. The transfer of an Employee between or among the Company, a Subsidiary or a Parent shall not be treated as a termination of his or her employment under this Plan. 18.5 CONSTRUCTION. This Plan shall be construed under the laws of the State of Georgia. -10- 11 MELITA INTERNATIONAL CORPORATION 1997 STOCK OPTION PLAN STOCK OPTION GRANT CERTIFICATE MELITA INTERNATIONAL CORPORATION, a Georgia corporation (the "Company"), hereby grants to the optionee named below ("Optionee") an option (this "Option") to purchase the total number of shares shown below of Common Stock of the Company (the "Shares") at the exercise price per share set forth below (the "Exercise Price"), subject to all of the terms and conditions on the reverse side of this Stock Option Grant Certificate and the Melita International Corporation 1997 Stock Option Plan (the "Plan"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan. The terms and conditions set forth on the reverse side hereof and the terms and conditions of the Plan are incorporated herein by reference. In witness whereof, this Stock Option Shares Subject to Option: Optionee hereby acknowledges Grant has been executed by the Company -------- receipt of a copy of the Plan, by a duly authorized officer as of the represents that Optionee has read and date specified hereon. Exercise Price Per Share: $ understands the terms and provisions of -------- the Plan, and accepts this Option MELITA INTERNATIONAL CORPORATION subject to all the terms and conditions Term of Option: Years expiring of the Plan and this Stock Option Grant ---- ----- Certificate. Optionee acknowledges that By: there may be adverse tax consequences ----------------------------------- Shares subject to issuance under this upon exercise of this Option or Option shall be eligible for exercise disposition of the Shares and that Date of Grant: according to the vesting schedule Optionee should consult a tax adviser Type of Stock Option: described in Section 10 on the reverse prior to such exercise or disposition. [ ] Incentive of this Stock Option Grant certificate. [ ] Non-Qualified Vesting Extension Period: -------------------------------------- Months Signature of Optionee -------- Not Applicable -------- -------------------------------------- Print Name of Optionee Vesting: Four Year Performance Vesting
12 1. EXERCISE PERIOD OF OPTION. Subject to the terms and conditions of this Option and the Plan, and unless otherwise modified by a written modification signed by the Company and Optionee, this Option may be exercised with respect to all of the Shares, but only according to the vesting schedule specified on the obverse side of this Stock Option Grant Certificate and as described in Section 10 below, prior to the date which is the last day of the Term set forth on the face hereof following the date of grant (hereinafter "Expiration Date"). 2. RESTRICTIONS ON EXERCISE. This Option may not be exercised, unless such exercise is in compliance with the Securities Act of 1933, as amended, and all applicable state securities laws, as they are in effect on the date of exercise, and the requirements of any stock exchange or national market system on which the Company's Common Stock may be listed at the time of exercise. Optionee understands that the Company is under no obligation to register, qualify or list the Shares with the Securities and Exchange Commission ("SEC"), any state securities commission or any stock exchange or national market system to effect such compliance. 3. TERMINATION OF OPTION. Except as provided below in this Section, this Option may not be exercised after the date which is thirty (30) days after Optionee ceases to perform services for the Company, or any Parent or Subsidiary. Optionee shall be considered to perform services for the Company, or any Parent or Subsidiary, for all purposes under this Section and Section 10 hereof, if Optionee is an officer or full-time employee of the Company, or any Parent or Subsidiary, or if the Committee determines that Optionee is rendering substantial services as a part-time employee, consultant, contractor or advisor to the Company, or any Parent or Subsidiary. The Committee shall have discretion to determine whether Optionee has ceased to perform services for the Company, or any Parent or Subsidiary, and the effective date on which such services cease (the "Termination Date"). Notwithstanding anything contained herein to the contrary, if the corporate position of Optionee is, at any time, altered or revised such that Optionee's responsibilities are materially reduced or decreased for any reason, as determined by the Committee in its sole discretion, the vesting of Shares under Section 10 shall cease, effective as of the date of such reduction in Optionee's employment responsibilities; provided, however, except as otherwise provided in this Option and the Plan, Optionee shall have the right to exercise this Option with respect to Shares which have vested under Section 10 as of the date of such reduction of Optionee's responsibilities. (a) Termination Generally. If Optionee ceases to perform services for the Company, or any Parent or Subsidiary, for any reason, except death or disability (within the meaning of Code Section 22(e)(3)), this Option shall immediately be forfeited, along with any and all rights or subsequent rights attached thereto, thirty (30) days following the Termination Date, but in no event later than the Expiration Date. (b) Death or Disability. If Optionee ceases to perform services for the Company, or any Parent or Subsidiary, as a result of the death or disability of Optionee (as determined by the Committee in its sole discretion), this Option, to the extent (and only to the extent) that it would have been exercisable by Optionee on the Termination Date, may be exercised by Optionee (or, in the event of Optionee's death, by Optionee's legal representative) within ninety (90) days after the Termination Date, but in no event later than the Expiration Date. (c) No Right to Employment. Nothing in the Plan or this Stock Option Grant Certificate shall confer on Optionee any right to continue in the employ of, or other relationship with, the Company, or any Parent or Subsidiary, or limit in any way the right of the Company, or any Parent or Subsidiary, to terminate Optionee's employment or other relationship at any time, with or without cause. 4. MANNER OF EXERCISE. (a) Exercise Agreement. This Option shall be exercisable by delivery to the Company of an executed Exercise and Shareholder Agreement ("Exercise Agreement") in the form of the Exercise Agreement delivered to Optionee, if applicable, or in such other form as may be approved or accepted by the Company, which shall set forth Optionee's election to exercise this Option with respect to some or all of the Shares, the number of Shares being purchased, any restrictions imposed on the Shares, and such other representations and agreements as may be required by the Company to comply with applicable securities laws. (b) Exercise Price. Such Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased. Payment for the Shares may be made in U.S. dollars in cash (by check). (c) Withholding Taxes. Prior to the issuance of Shares upon exercise of this Option, Optionee must pay, or make adequate provision for, any applicable federal or state withholding obligations of the Company. (d) Issuance of Shares. Provided that such Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall cause the Shares to be issued in the name of Optionee or Optionee's legal representative. 5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If this Option is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of: (a) the date two (2) years after the Date of Grant, or (b) the date one (1) year after exercise of the ISO, with respect to the Shares to be sold or disposed, Optionee shall immediately notify the Company in writing of such sale or disposition. Optionee acknowledges and agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by Optionee from any such early disposition by payment in cash or out of the current wages or earnings payable to Optionee. 6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any manner, other than by will or by the laws of descent and distribution, and may be exercised during Optionee's lifetime only by Optionee. The terms of this Option shall be binding upon the executor, administrators, successors and assigns of Optionee. 7. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT THE GRANT AND EXERCISE OF THIS OPTION, AND THE SALE OF SHARES OBTAINED THROUGH THE EXERCISE OF THIS OPTION, MAY HAVE TAX IMPLICATIONS THAT COULD RESULT IN ADVERSE TAX CONSEQUENCES TO OPTIONEE. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH, OR WILL CONSULT WITH, HIS OR HER TAX ADVISOR AND OPTIONEE FURTHER ACKNOWLEDGES THAT OPTIONEE IS NOT RELYING ON THE COMPANY OR ANY EMPLOYEE, OFFICER OR DIRECTOR OF, OR COUNSEL OR ACCOUNTANTS FOR, THE COMPANY FOR ANY TAX, FINANCIAL OR LEGAL ADVICE. 8. INTERPRETATION. Any dispute regarding the interpretation of this Stock Option Grant Certificate shall be submitted by Optionee or the Company to the Committee, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Committee shall be final and binding on the Company and Optionee. 9. ENTIRE AGREEMENT. The Plan and the Exercise Agreement are incorporated herein by this reference. Optionee acknowledges and agrees that the granting of this Option constitutes a full accord, satisfaction and release of all obligations or commitments made to Optionee by the Company or any of its officers, directors, shareholders or affiliates with respect to the issuance of any securities, or rights to acquire securities, of the Company or any of its affiliates. This Stock Option Grant Certificate, the Plan and the Exercise Agreement constitute the entire agreement of the parties hereto, and supersede all prior undertakings and agreements with respect to the subject matter hereof. 10. VESTING AND EXERCISE OF SHARES. Subject to the terms of the Plan, this Option and the Exercise Agreement, the Shares issued pursuant to the exercise of this Stock Option Grant Certificate shall be subject to the vesting restrictions selected on the obverse side of this Option and defined below. For purposes of this Section, "Continuous Service" means a period of continuous performance of services by Optionee for the Company, a Parent, or a Subsidiary, beginning on and after the Effective Date, February 7, 1997, or such other date as is established by the Commitee, as determined by the Committee. Four Year Performance Vesting: Optionee may exercise this Option with respect to the percentage of Shares set forth below only after Optionee has completed the following periods of Continuous Service following the date of grant: (a) After twelve (12) months of Continuous Service, up to twenty-five percent (25%) of the Shares, provided that the Year One Performance Objectives, set forth below, have been achieved, in the sole judgment of the Committee; further provided, that if the Year One Performance Objectives have not been achieved, Optionee may exercise this Option with respect to the aforementioned 25% of the Shares only upon completion of forty-eight months of Continuous Service. YEAR ONE PERFORMANCE OBJECTIVES: (b) After twenty-four (24) months of Continuous Service, an additional twenty-five percent (25%) of the Shares (over and above those subject to Subsection (a) above), provided that the Year Two Performance Objectives, set forth below, have been achieved, in the sole judgment of the Committee; further provided, that if the Year Two Performance Objectives have not been achieved, Optionee may exercise this Option with respect to the aforementioned 25% of the Shares only upon completion of forty-eight months of Continuous Service. YEAR TWO PERFORMANCE OBJECTIVES: (c) After thirty-six (36) months of Continuous Service, an additional twenty-five percent (25%) of the Shares: and (d) After forty-eight (48) months of Continuous Service, up to one hundred percent (100%) of the Shares; provided, however, that for any Optionee who has not continuously performed services for the Company, a Parent or a Subsidiary for at least six months prior to the Date of Grant, each of the periods referred to in clauses (a) through (d) shall be extended by the number of months equal to the difference between (i) six months and (ii) the number of months of Continuous Service prior to the Date of Grant (the "Vesting Extension Period"), as indicated on the obverse hereof. Notwithstanding the above, an Optionee shall become one hundred percent (100%) vested and shall be entitled to exercise the Option as to one hundred percent (100%) of the Shares granted pursuant to this Stock Option Grant Certificate upon a Change of Control of the Company, as defined in Section 17 of the Plan. 13 MELITA INTERNATIONAL CORPORATION 1997 STOCK OPTION PLAN EXERCISE AND SHAREHOLDER AGREEMENT This Exercise and Shareholder Agreement (the "Exercise Agreement") is made this_____ day of__________ , 199___ by and between Melita International Corporation (the "Company") and the optionee named below ("Optionee") pursuant to that certain Stock Option Grant described below which was granted to Optionee under the Melita 1997 Stock Option Plan (the "Plan"). Optionee: --------------------------------------- Social Security Number: --------------------------------------- Address: --------------------------------------- --------------------------------------- --------------------------------------- Number of Shares Purchased: --------------------------------------- Price Per Share $ -------------------------------------- Aggregate Purchase Price: $ -------------------------------------- Date of Stock Option Grant: -------------------------------------- Optionee hereby delivers to the Company the Aggregate Purchase Price by check in the amount of $___________, receipt of which is acknowledged by the Board of Directors ("Board") of the Company. The Company and Optionee hereby agree as follows: 1. PURCHASE OF SHARES. On this date and subject to the terms and conditions of this Exercise Agreement and the Plan, Optionee hereby exercises, subject to the contingencies below, the Stock Option Grant between the Company and Optionee dated as of the "Date of Stock Option Grant" set forth above (the "Option") with respect to the "Number of Shares Purchased" set forth above of the Company's Common Stock at the "Aggregate Purchase Price" set forth above (the "Purchase Price") and the "Price per Share" set forth above (the "Purchase Price Per Share"). The term "Shares" refers to the shares of the Company's no par value common stock purchased under this Exercise Agreement and includes all securities received (a) in replacement of the Shares and (b) as a result of stock dividends or stock splits in respect of the Shares. Capitalized terms used in this Exercise Agreement that are not defined herein have the definitions ascribed to them in the Plan and the Option. 2. REPRESENTATIONS OF PURCHASER. Optionee represents and warrants to the Company that: (a) Optionee acknowledges that Optionee has received, read and understood the Plan and the Option and agrees to abide by and be bound by their terms and conditions; 14 (b) Optionee is purchasing the Shares for Optionee's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the "1933 Act"); (c) Optionee has no present intention of selling or otherwise disposing of all or any portion of the Shares; (d) Optionee is fully aware of (i) the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved in the investment of the Shares; and (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Optionee may not be able to sell or dispose of the Shares or use them as collateral for loans); and (e) Optionee is capable of evaluating the merits and risks of this investment, has the ability to protect Optionee's own interests in this transaction and is financially capable of bearing a total loss of this investment. 3. COMPLIANCE WITH SECURITIES LAWS. Optionee understands and acknowledges that the Shares have not been registered under the 1933 Act and that, notwithstanding any other provision of the Option to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the 1933 Act and all applicable state securities laws. Optionee agrees to cooperate with the Company to ensure compliance with such laws. 4. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company shall have an assignable right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 4 (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating (i) the Holder's bona fide intention to sell or otherwise transfer such Shares, (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"), (iii) the number of Shares to be transferred to each Proposed Transferee, and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"); in addition, by providing the Notice, the Holder is deemed to be offering to sell the Shares at the Offered Price to the Company. (b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company or its assignee may, by giving written notice to the Holder, elect to purchase any or all of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with Subsection (c) below. (c) Purchase Price. The purchase price for the Shares purchased under this Section 4 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board in good faith. (d) Payment. Payment of the purchase price shall be made, at the option of the Company or its assignee, either (i) in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company or such assignee, or by any combination thereof -2- 15 within thirty (30) days after receipt of the Notice or (ii) in the manner and at the time(s) set forth in the Notice. (e) Holder's Right to Transfer. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee as provided in this Section 4, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred and twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 4 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company shall again be offered the Right of First Refusal, before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary contained in this Section 4 notwithstanding, the transfer of any or all of the Shares, during Optionee's lifetime or on Optionee's death by will or intestacy, to Optionee's immediate family or to a trust for the benefit of Optionee or Optionee's immediate family shall be exempt from the provisions of this Section; provided, that as a condition to receiving the Shares, the transferee or other recipient shall agree in writing to receive and hold the Shares so transferred subject to the provisions of this Agreement, and to transfer such Shares no further except in accordance with the terms of this Agreement. As used herein, "immediate family" shall mean the Optionee's spouse, lineal descendant or antecedent, father, mother, brother or sister. (g) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon an Initial Public Offering (as such term is defined in the Plan). 5. COMPANY'S REPURCHASE OPTION. The Company shall have the option to repurchase all or a portion of the Shares on the terms and conditions set forth in this Section 5 (the "Repurchase Option") if Optionee should cease to be employed by the Company for any reason, or no reason, including without limitation Optionee's death, disability, voluntary resignation or termination by the Company with or without cause. (a) Right of Termination Unaffected. Nothing in this Agreement shall be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company to terminate Optionee's employment or association with the Company at any time, for any reason or no reason, with or without cause. For purposes of this Agreement, Optionee shall be considered to be employed by the Company or associated with the Company if Optionee is an officer, director or full-time employee of the Company or any Parent or Subsidiary of the Company or if the Board determines that Optionee is rendering substantial services as a part-time employee, consultant, contractor or advisor to the Company or any Parent or Subsidiary of the Company. The Board shall have discretion to determine whether Optionee has ceased to be employed by or associated with the Company or any Parent or Subsidiary and the effective date on which such employment or association is terminated (the "Termination Date"). (b) Exercise of Repurchase Option. Subject to Section 5(e) below, any time following the Termination Date, the Company may elect to repurchase any or all of the Shares by giving Optionee written notice of exercise of the Repurchase Option. -3- 16 (c) Calculation of Repurchase Price. In the event Optionee's employment with the Company terminates for any reason whatsoever, the Company or its assignee shall have the option to repurchase from Optionee (or from Optionee's personal representative as the case may be) any or all of the Shares at a price equal to the Fair Market Value (as defined in the Plan) of such Shares on the Termination Date. (d) Payment of Repurchase Price. The repurchase price shall be payable, at the option of the Company or its assignee, by (i) check, (ii) by cancellation of all or a portion of any outstanding indebtedness of Optionee to the Company or such assignee, (iii) by delivery of a promissory note of the Company payable in equal annual installments over a four (4) year period from the date of repurchase at a per annum interest rate equal to the prime rate as announced from time to time by the Company's principal bank or, if the Company has no principal bank, that rate announced by the Wall Street Journal as the prevailing "prime rate" of interest per annum, as of the Termination Date, or (iv) any combination of the above. (e) Termination of Repurchase Rights. The Repurchase Option shall terminate as to any Shares upon an Initial Public Offering (as such term is defined in the Plan). 6. COMPLIANCE WITH FEDERAL AND STATE SECURITIES LAWS. Optionee understands and acknowledges that, in reliance upon the representations and warranties made by Optionee herein, the Shares have not been registered with the Securities and Exchange Commission ("SEC") under the 1933 Act, but have been issued under an exemption or exemptions from the registration requirements of the 1933 Act which impose certain restrictions on Optionee's ability to transfer the Shares and have not been registered under any Georgia securities laws or the securities laws of any other state. Optionee understands that Optionee may not transfer any Shares unless such Shares are registered under the 1933 Act and the securities laws of Georgia (or the securities laws of any other state, if applicable) or unless, in the opinion of counsel to the Company, an exemption from such registration is available. Optionee understands that only the Company may file a registration statement with the SEC or Georgia (or other applicable states), and that the Company is under no obligation to do so with respect to the Shares. Optionee has also been advised that an exemption from registration may not be available or may not permit Optionee to transfer all or any of the Shares in the amounts or at the times proposed by Optionee. 7. ESCROW. As security for the faithful performance of this Exercise Agreement, Optionee agrees, immediately upon receipt of the certificate(s) evidencing the Shares, to deliver such certificate(s), to the Secretary of the Company or its designee ("Escrow Holder"), who is hereby appointed to hold such certificate(s) in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Exercise Agreement. Optionee and the Company agree that Escrow Holder shall not be liable to any party to this Exercise Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent relative thereto. The Escrow Holder may rely upon any letter, notice or other document executed by any signature reputed to be genuine and may rely upon advice of counsel and obey any order of any court with respect to the transactions contemplated herein. The Shares shall be released from escrow upon termination of both the Right of First Refusal set forth in Section 4 and the Repurchase Option set forth in Section 5; provided, however, that such release shall not affect the rights of the Company with respect to any pledge of Shares to the Company. Optionee hereby irrevocably constitutes and appoints Escrow Holder as Optionee's agent and attorney-in-fact for the purpose of executing and delivering any and all documents necessary to transfer any Shares purchased hereunder to the Company pursuant to the terms of this Exercise Agreement and to record such transfer on the books of the Company, such appointment being made with full power of substitution in the premises. -4- 17 8. LEGENDS. Optionee understands and agrees that the certificate(s) representing the Shares will bear legends in substantially the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE GEORGIA SECURITIES ACT OF 1973, AS AMENDED ("GEORGIA ACT"), UNDER ANY OTHER STATE SECURITIES LAW, OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("FEDERAL ACT"). THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, HYPOTHECATED, SOLD OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE THEREOF BE RECOGNIZED BY THE CORPORATION AS HAVING AN INTEREST IN SUCH SHARES, IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SHARES UNDER THE FEDERAL ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED, AND (II) AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SHARES UNDER THE GEORGIA ACT AND UNDER ANY OTHER APPLICABLE STATE LAW, OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH SHARES WILL BE OFFERED FOR SALE, HYPOTHECATED, SOLD OR TRANSFERRED ONLY IN A TRANSACTION WHICH IS EXEMPT UNDER, OR WHICH IS OTHERWISE IN COMPLIANCE WITH, THE GEORGIA ACT AND ANY OTHER APPLICABLE STATE SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN EXERCISE AND SHAREHOLDER AGREEMENT DATED THE _____ DAY OF _______________, 19___, A COPY OF WHICH IS ON FILE WITH THE CORPORATION." 9. STOP-TRANSFER NOTICES. Optionee understands and agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop-transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. 10. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. IN PARTICULAR, OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH OPTIONEE'S TAX ADVISORS CONCERNING THE ADVISABILITY OF FILING AN ELECTION WITH THE INTERNAL REVENUE SERVICE UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE OF 1986, AS IT MAY BE AMENDED FROM TIME TO TIME. 11. ENTIRE AGREEMENT. The Plan and the Option are incorporated herein by reference. This Exercise Agreement, the Plan and the Option constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and are governed by Georgia law except for that body of law pertaining to conflict of laws. -5- 18 Submitted by: Accepted by: OPTIONEE: COMPANY: - ------------------------------------- MELITA INTERNATIONAL (Print name of Optionee) CORPORATION By: - ------------------------------------- -------------------------------- (Signature of Optionee) Title: ----------------------------- Dated: Dated: ------------------------------- ----------------------------- -6- EX-10.4 10 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.4 MELITA INTERNATIONAL CORPORATION EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE. The Melita International Corporation Employee Stock Purchase Plan (the "Plan") is intended to encourage employee stock ownership by offering employees of Melita International Corporation (the "Company") and its subsidiaries Purchase Rights (as such term is defined in Section 2) to purchase shares of Common Stock. The Plan is intended to operate as a bifurcated plan, providing benefits as an "employee stock purchase plan" as defined in Section 423 of the Internal Revenue Code of 1986, as amended ("Code"), to those employees eligible to participate in and receive benefits under such a plan, and providing similar benefits through an employee stock purchase plan not intended to satisfy Code Section 423 to eligible employees who may not benefit under a plan satisfying Code Section 423. The provisions of the Plan shall, accordingly, be construed so as to comply with the requirements of Section 423 of the Code, whenever possible. 2. DEFINITIONS. "BASE PAY" means regular straight-time and overtime earnings received from the Company, excluding payments for incentive compensation, bonuses and other special payments. "BOARD" mean the Board of Directors of the Company. "COMMITTEE" means the Board or, if designated by the Board, the Compensation Committee of the Board or any other committee which may be so designated. "COMMON STOCK" or "STOCK" means the Common Stock, par value $.001 per share, of Harbinger Corporation, and any other stock or securities (including any other share or securities of an entity other than Harbinger Corporation) for or into which the outstanding shares of such stock are hereinafter exchanged or changed. "COMPANY" means Melita International Corporation. "CUSTODIAN" means Smith Barney, Inc., whose address is 388 Greenwich Street, 28th Floor, New York, New York 10013, or such other person as the Committee shall designate from time to time. "EFFECTIVE DATE" means the date of effectiveness of the Company's registration statement under the Securities Act of 1933 related to the Company's initial public offering, or such other date set by the Board for the Plan to become effective. The Effective Date shall be subject to shareholder approval pursuant to Section 17. 2 "EXERCISE DATE" means the last day of a Purchase Period (as such term is defined in Section 4(b) hereof), on which date all Participants' outstanding Purchase Rights will automatically be exercised. "FAIR MARKET VALUE" of each share of Common Stock on any date means the price determined below on the last business day immediately preceding the date of valuation: (a) The closing sales price per share of the Common Stock, regular way, or in the absence thereof the mean of the last reported bid and asked quotations, on such date on the exchange having the greatest volume of trading in the Common Stock during the thirty-day period preceding such date (or if such exchange was not open for trading on such date, the next preceding date on which it was open); or (b) If there is no price as specified in (a), the final reported sales price per share of the Common Stock, or if not reported, the mean of the closing high bid and low asked prices in the over-the-counter market for the Common Stock as reported by the National Association of Securities Dealers Automatic Quotation System, or if not so reported, then as reported by the National Quotation Bureau Incorporated, or if such organization is not in existence, by an organization providing similar services, on such date (or if such date is not a date for which such system or organization generally provides reports, then on the next preceding date for which it does so); or (c) If there also is no price as specified in (b), the price per share of the Common Stock determined by the Board by reference to bid-and-asked quotations for the Common Stock provided by members of an association of brokers and dealers registered pursuant to Subsection 15(b) of the Exchange Act, which members make a market in the Common Stock, for such recent dates as the Board shall determine to be appropriate for fairly determining current market value; or (d) If there also is no price as specified in (c), an amount per share of the Common Stock determined in good faith by the Board to be the price at which the Committee acting in good faith determines through any reasonable valuation method that a share of the Common Stock might change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts. The Fair Market Value may be based on the most recent valuation of the Company performed by the Company's auditors or by other professionals retained to value the Company. "NASDAQ" means the National Association of Securities Dealers Automated Quotation System. "PARTICIPANT" means an employee of the Company or of a parent or subsidiary of the Company who has enrolled in the Plan by completing a Participation Form (as such term is defined in Section 5 hereof) with the Plan Administrator. For purposes of the Plan, a parent means a company which owns a majority interest in the Company and effectively controls the Company, and a subsidiary means a company in which the Company owns a majority interest and which the Company effectively controls. For purposes of employees participating in the -2- 3 portion of the Plan satisfying Code Section 423, the terms parent and subsidiary have the meanings set forth in Code Sections 424(e) and (f), respectively. "PLAN ADMINISTRATOR" means the Director of Human Resources of the Company, or any such other person so designated by the Committee. "PURCHASE PERIOD" means a semi-annual period as defined in Section 4(b) hereof. "PURCHASE RIGHT" means a Participant's option to purchase shares of Common Stock that is deemed to be granted to a Participant during a Purchase Period pursuant to Section 7. "SECTION 16(B) INSIDER" means those persons subject to the requirements of Section 16(b) of the Securities Exchange Act of 1934, as amended. "TRADING DAY" refers to a day during which the NASDAQ National Market System is available for trading shares of Common Stock. 3. ELIGIBILITY. (a) Participation in the Plan is voluntary. All full-time employees of the Company, including officers and directors who are full-time employees but who are not members of the Committee, who have completed at least six (6) months of continuous service with the Company are eligible to participate in the Plan. The employee's entry date in the Plan shall be the first day of the Purchase Period immediately following the date the employee has satisfied the eligibility provisions. Full-time employees mean those employees who work at least twenty (20) hours per week and for more than nine (9) months in any calendar year. (b) Notwithstanding any provision of the Plan to the contrary, no employee may participate in that part of the Plan which is intended to satisfy Code Section 423 if prior to the grant of Purchase Rights or if following a grant of Purchase Rights under the Plan, the employee would own, directly or by attribution, stock, Purchase Rights or other stock options to purchase stock representing five percent (5%) or more of the total combined voting power or value of all classes of the Company's stock as defined in Code Section 423(b)(3). (c) Subject to committee approval, any employees of a company or other entity which is acquired directly or indirectly by the Company (whether by merger, consolidation, stock purchase or otherwise) and becomes a subsidiary of the Company (as such term is defined in Code Section 424(f)) may, for purposes of determining eligibility to participate in the Plan, be granted past service credit for employment with such company or entity. 4. SECURITIES SUBJECT TO THE PLAN AND PURCHASE PERIODS. (a) The maximum number of shares which may be granted and purchased under the Plan may not exceed Two Hundred and Fifty Thousand (250,000) shares of Common Stock (subject to adjustment as provided in Section 15), which may be authorized but unissued shares, re-acquired shares or shares bought on the open market. If any Purchase Right granted shall -3- 4 expire or terminate for any reason without having been exercised in full, the unpurchased shares of Common Stock shall again become available for purposes of the Plan, unless the Plan has been terminated. (b) Purchase Period means each six-month period, beginning on January 1 and July 1 of each year; provided, however, that the first such Purchase Period shall begin concurrently with the Effective Date of the Plan and end of the first December 31 or June 30 occurring more than six months after the Effective Date. 5. PARTICIPATION. Eligible employees become Participants in the Plan by authorizing payroll deductions for the purpose through a "Participation Form" filed with the Plan Administrator no later than fifteen (15) days prior to the start date of a Purchase Period. Notwithstanding the above, and subject to committee approval, the Plan Administrator may provide for a special election period for participation in the Plan following the acquisition of a company or other entity directly or indirectly by the Company (whether by merger, consolidation, stock purchase or otherwise) which results in such company or entity becoming a subsidiary of the Company (as such term is defined in Code Section 424(f)). Subject to committee approval, all employees of the Company and its subsidiaries shall be eligible to participate in such special election period. 6. PAYROLL DEDUCTIONS. (a) In order to purchase Common Stock each Participant must elect and indicate on the Participation Form the amount he/she wishes to authorize the Company to deduct at regular payroll intervals during the Purchase period, expressed either as (1) an integral percentage amount ranging from one percent (1%) to ten percent (10%) of such Participant's Base Pay for the applicable payroll period, with a minimum deduction of $10.00 per payday during the Purchase Period, or (2) a dollar amount to be deducted pro rata at regular payroll intervals during the Purchase Period, with a minimum deduction of $10 per payday and a maximum dollar amount per payday to be set by the Committee. The Committee shall determine from time to time whether method (1) or (2), or both, shall be utilized. The Participation Form will include authorization for the Company to make payroll deductions from the Participant's Base Pay. (b) A Participant may not be granted Purchase Rights under the Plan with respect to more than $25,000.00 worth of Common Stock for any calendar year such Purchase Rights to purchase Common Stock are outstanding pursuant to the terms of the Plan. The $25,000.00 limit is determined according to the Fair Market Value of the Common Stock on the first day (the grant date) of the Purchase Period. Participants will be notified if these limitations become applicable to them. (c) The amounts deducted from the Participant's Base Pay shall be credited to a bookkeeping account established in the Participant's name under the Plan, but no actual separate account will be established by the Company to hold such amounts. There shall be no interest paid on the balance credited to a Participant's account. Amounts deducted from the participant's Base -4- 5 Pay may be commingled with the general assets of the Company and may be used for its general corporate purposes prior to the purchase of Common Stock for a Purchase Period. (d) Payroll deductions shall begin on the first payday of each Purchase Period, and shall end on the last payday of each Purchase Period. Eligible employees may participate in the Plan and purchase shares only through payroll deductions. Notwithstanding the above, a Participant on an approved leave of absence may continue participating in the Plan by making cash payments to the Company within a normal pay period equal to the amount of the normal payroll deduction had a leave of absence not occurred. The right of a Participant on an approved leave of absence to continue participating in the Plan shall terminate upon the expiration of twelve (12) weeks of leave, unless the Participant's right to re-employment by the Company after a longer leave is guaranteed by statute or contract, in which case termination of the right to participate will occur upon the expiration of such extended period. (e) So long as a Participant remains an employee of the Company, payroll deductions will continue in effect from Purchase Period to Purchase Period, unless at least fifteen (15) calendar days prior to the first day of the next succeeding Purchase Period the Participant: (i) elects a different rate by filing a new Participation Form with the Plan Administrator; or (ii) withdraws from the Plan in accordance with Section 9 hereof. (f) Unless a Participant files with the Plan Administrator a new Participation Form electing to withdraw prior to fifteen (15) calendar days before the beginning of the next Purchase Period as permitted under the Plan, such Participant's payroll deductions will continue throughout the next Purchase Period and his or her Purchase Right to purchase Common Stock will be deemed to be fully and automatically exercised on the last day of such Purchase Period with respect to payroll deductions made during that Purchase Period. 7. GRANT OF PURCHASE RIGHT. (a) Subject to the effective date provisions of Section 17, at 5:01 p.m. Eastern Standard Time, on the last day of each Purchase Period (the Exercise Date), each Participant who has not withdrawn from the Plan pursuant to Section 9 shall be deemed to have been granted a Purchase Right as of the first day of the Purchase Period to purchase as many full shares of Common Stock as can be purchased with the balance credited to such Participant's account as of the Exercise Date. (b) The price at which each Purchase Right to purchase Common Stock shall be exercised is the lower of: (i) 85% of the Fair Market Value of the Common Stock on the NASDAQ National Market System on the first Trading Day of a Purchase Period; or -5- 6 (ii) 85% of the Fair Market Value of the Common Stock on the NASDAQ National Market System on the last Trading Day of such Purchase Period. (c) The number of shares purchasable by each Participant per Purchase Period will be the number of whole and fractional shares obtained by dividing the amount credited to the Participant's Account as of the Exercise Date in the Purchase Period by the purchase price in effect for the Purchase Period. (d) A Participant may not purchase shares of Stock with a Fair Market Value exceeding $12,500 for any particular Purchase Period. The Committee has the power, exercisable at any time prior to the start of a Purchase Period, to increase or decrease the dollar value maximum for that Purchase Period, subject to the limitations in Section 6(b). The maximum, as thus adjusted, will continue in effect from Purchase Period to Purchase Period until the Committee once exercises its power to adjust the maximum. 8. EXERCISE OF PURCHASE RIGHT (a) Subject to the effective date provisions of Section 17, each outstanding Purchase Right shall be deemed automatically exercised as of 5:01 p.m. of the Exercise Date (the last day of the Purchase Period). The exercise of the Purchase Right is accomplished by applying the balance credited to each Participant's account as of the Exercise Date to the purchase on the Exercise Date of whole and fractional shares of Common Stock at the purchase price in effect for the Purchase Period. (b) If a Participant purchases the maximum share amount set forth in Section 7(d), any amount not applied to the purchase of Common Stock for that Purchase Period will be held for the purchase of Stock in the next Purchase Period. (c) If the number of Shares for which Purchase Rights are exercised exceeds the number of Shares available in any Purchase Period under the Plan, the Shares available for exercise will be allocated by the Plan Administrator pro rata among the Participants in such Purchase Period in proportion to the relative amounts credited to their accounts. Any amounts not thereby applied to the purchase of Common Stock under the Plan will be refunded to the Participants after the end of the Purchase Period. 9. WITHDRAWAL AND TERMINATION OF PURCHASE RIGHTS. (a) A Participant may withdraw from the Plan during a Purchase Period by providing written notice to the Plan Administrator on or before 5:00 p.m. of the last business day of such Purchase Period. Such withdrawal will become effective upon receipt by the Plan Administrator of such notice, and payroll deductions will cease as soon as is administratively feasible from the date of such notice, and no additional payroll deductions will be made on behalf of such Participant during the Purchase Period. Such notice shall be on a form (the "Withdrawal Form") provided by the Plan Administrator for that purpose. The Withdrawal Form will permit such a Participant to elect to receive all accumulated payroll deductions as a refund without penalty or to exercise such Participant's outstanding Purchase Rights to purchase Stock on the following -6- 7 Exercise Date in the amount of all payroll deductions withheld during the Purchase Period prior to the Participant's withdrawal. (b) Any Participant who withdraws from the Plan pursuant to Section 9(a) will not be eligible to rejoin the Plan until the second (2nd) Purchase Period following the Purchase Period of withdrawal. A Participant wishing to resume participation may re-enroll in the Plan by completing and filing a new Participation Form for a subsequent Purchase Period by following the applicable enrollment procedures. (c) To the extent, if any, required by Section 16(b) of the Securities Exchange Act of 1934, as amended, and the rules, regulations, decisions and no action positions thereunder, in the event a Participant who is a Section 16(b) Insider ceases participation in the Plan, whether as a result of withdrawal during a Purchase Period or of such Participant's decision to discontinue his or her enrollment for subsequent Purchase Periods, such insider may not re-enroll in the Plan until the Purchase Period beginning coincident with or immediately following the expiration of a six (6) month period beginning upon the effective date of such Section 16(b) Insider's withdrawal from the Plan. (d) If a Participant ceases to be an employee of the Company for any reason during a Purchase Period, his or her outstanding Purchase Right will immediately terminate, and all sums previously collected from such Participant during such Purchase Period under the terminated Purchase Right will be refunded to the Participant. 10. RIGHTS AS SHAREHOLDER. (a) A Participant is not a shareholder in shares to be purchased during a Purchase Period until the Purchase Right is exercised on the Exercise Date. Thus, a Participant will not have a right to any dividend or distribution made prior to the Exercise Date on shares of Common Stock purchased during the Purchase Period. (b) Upon a written request made to the Custodian, the Participant will be entitled to receive, as soon as practicable after the Exercise Date, a stock certificate for the number of purchased shares. The Custodian may impose upon, or pass through to, the Participant a reasonable fee for the transfer of shares of Common Stock in the form of stock certificates from the Custodian to the Participant. It is the responsibility of each Participant to keep his or her address current with the Company through the Plan Administrator and with the Custodian. 11. SALE OF COMMON STOCK ACQUIRED UNDER THE PLAN. (a) Participants may sell the shares of Common Stock they acquire under the Plan only in compliance with the restrictions set forth below. -7- 8 (i) Section 16(b) Insiders may be subject to certain restrictions in connection with their transactions under the Plan and with respect to the sale of shares of Stock obtained under the Plan, including, but not limited to, the Company's Insider Trading Policy. (ii) Sales of Stock obtained under the Plan by a Participant must comply with the Company's Insider Trading Policy, as the same may exist from time to time. (iii) No Participant purchasing shares of Common Stock under the Plan shall be entitled to sell such shares of Stock until the first day of the second (2nd) Purchase Period immediately following the Purchase Period in which the shares of Stock were obtained. For purposes of this restriction, the Company may, at its option, include the following legend on any certificates representing the Stock so purchased: "The shares represented by this Certificate are subject to certain restrictions on sale and disposition contained in the Melita International Corporation Employee Stock Purchase Plan, a copy of which is on file with the Corporation." (b) The Participant understands and agrees that, in order to insure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) A Participant shall immediately inform the Plan Administrator in writing if the Participant transfers any shares purchased through the Plan within two (2) years from the date of grant of the related Purchase Right. Such transfer shall include disposition by sale, gift or other manner. The Participant may be requested to disclose the manner of the transfer, the date of the transfer, the number of shares involved and the transfer price. By executing the Participation Form, each Participant obligates himself or herself to provide such information to the Plan Administrator. (d) The Company is authorized to withhold from any payment to be made to a Participant, including any payroll and other payments not related to the Plan, amounts of withholding and other taxes due in connection with any transaction under the Plan, and a Participant's enrollment in the Plan will be deemed to constitute his or her consent to such withholding. 12. PLAN ADMINISTRATION. (a) The Plan shall be administered by the Committee. No member of the Board will be eligible to participate in the Plan during his or her period of Committee service. (b) The Committee shall have the plenary power, subject to and within the limited of the express provisions of the Plan: (i) to determine the commencement and termination date of the offering of Common Stock under the Plan; and -8- 9 (ii) to interpret the terms of the Plan, established and revoke rules for the administration of the Plan and correct or reconcile any defect or inconsistency in the Plan. (c) The Committee may delegate all or part of its authority to administer the Plan to the Plan Administrator, who may in turn delegate the day-to-day operations of the Plan to the Custodian. The Custodian will establish and maintain, as agent for the Participants, accounts for the purpose of holding shares of Common Stock and/or cash contributions as may be necessary or desirable for the administration of the Plan. (d) The Board may waive or modify any requirement that a notice or election be made or filed under the Plan a specified period in advance in an individual case or by adoption of a rule or regulation under the Plan, without the necessity of an amendment to the Plan. 13. TRANSFERABILITY. (a) Any account maintained by the Custodian for the benefit of a Participant with respect to shares acquired pursuant to the Plan may only be in the name of the Participant; provided, however, that the Participant may elect to maintain such account with right of joint ownership with such Participant's spouse. Such election may only be made on a form (the "Joint Account Form") provided by the Company. (b) Neither payroll deductions credited to a Participant's account nor any Purchase Rights or other rights to acquire Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of by Participants other than by will or the laws of descent and distribution and, during the lifetime of a Participant, Purchase Rights may be exercised only by the Participant. 14. MERGER OR LIQUIDATION OF THE COMPANY. In the event the Company merges with another corporation and the Company is not the surviving entity, or in the event all or substantially all of the stock or assets of the Company is acquired by another company, or in the event of certain other similar transactions, the Committee may, in its sole discretion and in connection with such transaction, cancel each outstanding Purchase Right and refund all sums previously collected from Participants under the canceled outstanding Purchase Rights, or, in its discretion, cause each Participant with outstanding Purchase Rights to have his or her outstanding Purchase Right exercised immediately prior to such transaction and thereby have the balance of his or her account applied to the purchase of whole and fractional shares of Common Stock (subject to the maximum dollar limitation of Section 7(d)) at the purchase price in effect for the Purchase Period, which would be treated as ending with the effective date of such transaction. The balance of the account not so applied with be refunded to the Participant. In the event of a merger in which the Company is the surviving entity, each Participant is entitled to receive, for each share as to which such Participant's Outstanding Purchase Rights are exercised as nearly as reasonably may be determined by the Committee, in its sole discretion, the securities or property that a holder of one share of Common Stock was entitled to receive upon the merger. -9- 10 15. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. To prevent dilution or enlargement of the rights of Participants under the Plan, appropriate adjustments may be made in the event any change is made to the Company's outstanding Common Stock by reason of any stock dividend, stock split, combination of shares, exchange of shares or other change in the Common Stock effected without the Company's receipt of consideration. Adjustments may be made to the maximum number and class of securities issuable under the Plan, the maximum number and class of securities purchasable per outstanding Purchase Right and the number and class of securities and price per share in effect under each outstanding Purchase Right. Any such adjustments may be made retroactively effective to the beginning of the Purchase Period in which the change in capitalization occurs, and any such adjustment will be made by the Committee in its sole discretion. 16. AMENDMENT AND TERMINATION. The Committee may terminate or amend the Plan at any time; provided, however, that no termination or amendment of the Plan shall change or affect Purchase Rights previously granted under the Plan without the consent of the affected Participant. If not sooner terminated by the Committee, the Plan shall terminate at the time Purchase Rights have been exercised with respect to all shares of Common Stock reserved for grant under the Plan. 17. SHAREHOLDER APPROVAL AND EFFECTIVE DATE. The Plan is subject to the approval of shareholders of the Company holding a majority of the shares of the Common Stock. Until the Plan is approved by the shareholders, no Purchase Rights shall be deemed granted or exercised under Sections 7 and 8. Upon approval of the Plan by the Company's shareholders, Purchase Rights shall be deemed granted and exercised as of the appropriate dates in the Plan as of the Effective Date, and shares of Stock purchased shall be deemed purchased as of the applicable Exercise Date. 18. NO EMPLOYMENT RIGHTS. Participation in the Plan will not impose any obligations upon the Company to continue the employment of the Participant for any specific period and will not affect the right of the Company to terminate such person's employment at any time, with or without cause. 19. COSTS. Except as set forth in Section 10(b), costs and expenses incurred in the administration of the Plan and the maintenance of accounts with the Custodian may be shared by the Participant and the Company, to the extent provided in this Section 19. Any brokerage fees and commissions for the purchase of Common Stock under the Plan (including shares of Common Stock purchased upon reinvestment of dividends and distributions) will be shared equally by the Participant and the Company, but any brokerage fees and commission for the sale of shares of Common Stock under the Plan by a Participant will be borne by such Participant. -10- 11 20. REPORTS. After the close of each Purchase Period, each Participant in the Plan will receive a report from the Custodian indicating the amount of the Participant's contributions to the Plan during the Purchase Period, the amount of the contributions applied to the purchase of Common Stock for the Purchase Period, the purchase price per share in effect for the Purchase Period and the amount of the contributions (if any) carried over to the next Purchase Period. 21. GOVERNING LAW. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan will be determined in accordance with laws of the State of Georgia, without giving effect to principles of conflicts of laws, and applicable Federal law. 22. COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS. The Plan, the granting and exercising of Purchase Rights hereunder, and the other obligations of the Company, the Plan Administrator and the Custodian under the Plan will be subject to all applicable federal and state laws, rules, and regulations, and to such approvals by any regulatory or governmental agency as may be required. The Company may, in its discretion, postpone the issuance or delivery of shares of Common Stock upon exercise of Purchase Rights until completion of such registration or qualification of such shares of Common Stock or other required action under any federal or state law, rule, or regulation, listing or other require action with respect to any automated quotation system or stock exchange upon which the shares of Common Stock or other Company securities are designated or listed, or compliance with any other contractual obligation of the Company, as the Company may consider appropriate, and may require any Participant to make such representations and furnish such information as it may consider appropriate in connection with the issuance or deliver of shares of Common Stock in compliance with applicable laws, rules, and regulations, designation or listing requirements, or other contractual obligations. 23. EFFECT OF PLAN. The provisions of the Plan shall, in accordance with its terms, be binding upon and inure to the benefit of, all successors of each employee participating in the Plan, including, without limitation, such employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such employee. -11- EX-10.5 11 401(K) PROFIT SHARING PLAN 1 EXHIBIT 10.5 MELITA INTERNATIONAL CORPORATION 401(K) PROFIT SHARING PLAN SUMMARY PLAN DESCRIPTION 2 TABLE OF CONTENTS INTRODUCTION TO YOUR PLAN GENERAL INFORMATION ABOUT YOUR PLAN 1. GENERAL PLAN INFORMATION.......................................................................................3 2. EMPLOYER INFORMATION...........................................................................................3 3. PLAN ADMINISTRATOR INFORMATION.................................................................................3 4. PLAN TRUSTEE INFORMATION.......................................................................................4 5. SERVICE OF LEGAL PROCESS.......................................................................................4 PARTICIPATION IN YOUR PLAN 1. ELIGIBILITY REQUIREMENTS.......................................................................................5 2. PARTICIPATION REQUIREMENTS.....................................................................................5 CONTRIBUTIONS TO YOUR PLAN 1. EMPLOYER CONTRIBUTIONS TO THE PLAN.............................................................................5 2. PARTICIPANT SALARY REDUCTION ELECTION..........................................................................6 3. YOUR SHARE OF EMPLOYER CONTRIBUTIONS...........................................................................7 4. COMPENSATION...................................................................................................8 5. FORFEITURES....................................................................................................9 6. TRANSFERS FROM QUALIFIED PLANS (ROLLOVERS).....................................................................9 BENEFITS UNDER YOUR PLAN 1. DISTRIBUTION OF BENEFITS UPON NORMAL RETIREMENT................................................................9 2. DISTRIBUTION OF BENEFITS UPON LATE RETIREMENT.................................................................10 3. DISTRIBUTION OF BENEFITS UPON DEATH...........................................................................10 4. DISTRIBUTION OF BENEFITS UPON DISABILITY......................................................................11 5. DISTRIBUTION OF BENEFITS UPON TERMINATION OF EMPLOYMENT.......................................................11 6. VESTING IN YOUR PLAN..........................................................................................12 7. BENEFIT PAYMENT OPTIONS.......................................................................................12 8. TREATMENT OF DISTRIBUTIONS FROM YOUR PLAN.....................................................................14 9. DOMESTIC RELATIONS ORDER......................................................................................14 10. PENSION BENEFIT GUARANTY CORPORATION.........................................................................15 YEAR OF SERVICE RULES 1. YEAR OF SERVICE AND HOUR OF SERVICE...........................................................................15 2. 1-YEAR BREAK IN SERVICE.......................................................................................16 YOUR PLAN'S "TOP HEAVY RULES" 1. EXPLANATION OF "TOP HEAVY RULES"..............................................................................17 CLAIMS BY PARTICIPANTS AND BENEFICIARIES 1. THE CLAIMS REVIEW PROCEDURE...................................................................................18 STATEMENT OF ERISA RIGHTS 1. EXPLANATION OF YOUR ERISA RIGHTS..............................................................................19 AMENDMENT AND TERMINATION OF YOUR PLAN 1. AMENDMENT.....................................................................................................20 2. TERMINATION...................................................................................................20
3 MELITA INTERNATIONAL CORPORATION 401(K) PROFIT SHARING PLAN SUMMARY PLAN DESCRIPTION I INTRODUCTION TO YOUR PLAN MELITA INTERNATIONAL CORPORATION has amended your 401(k) Profit Sharing Plan and Trust as of January 1, 1993. MELITA INTERNATIONAL CORPORATION continues to recognize the efforts you have made to its success. This amended 401(k) Profit Sharing Plan and Trust is for the exclusive benefit of eligible employees and their beneficiaries. Your Plan is a "salary reduction plan." It is also called a "401(k) plan." Under this type of plan, you may choose to reduce your compensation and have these amounts contributed to this Plan on your behalf. The purpose of this Plan is to reward eligible employees for long and loyal service by providing them with retirement benefits. Between now and your retirement, your Employer intends to make contributions for you and other eligible employees. When you retire, you will be eligible to receive the value of the amounts which have accumulated in your account. Your Employer has the right to submit this Plan to the Internal Revenue Service for approval. The Internal Revenue Service will issue a "determination letter" to your Employer approving this Plan as a "qualified" retirement plan, if this Plan meets specific legal requirements. This Summary Plan Description is a brief description of your Plan and your rights, obligations, and benefits under that Plan. Some of the statements made in this Summary Plan Description are dependent upon this Plan being "qualified" under the provisions of the Internal Revenue Code. This Summary Plan Description is not meant to interpret, extend, or change the provisions of your Plan in any way. The provisions of your Plan may only be determined accurately by reading the actual Plan document, including the Adoption Agreement. A copy of your Plan and the Adoption Agreement are on file at your Employer's office and may be read by you, your beneficiaries, or your legal representatives at any reasonable time. If you have any questions regarding either your Plan, the Adoption Agreement or this Summary Plan Description, you should ask your Plan's Administrator. In the event of any discrepancy between this Summary Plan Description and the actual provisions of the Plan, the Plan will govern. 4 II GENERAL INFORMATION ABOUT YOUR PLAN There is certain general information which you may need to know about your Plan. This information has been summarized for you in this Section. 1. General Plan Information MELITA INTERNATIONAL CORPORATION 401(K) PROFIT SHARING PLAN is the name of your Plan. Your Employer has assigned Plan Number 001 to your Plan. The amended and restated provisions of your Plan become effective on January 1, 1993. Your Plan's records are maintained on a twelve-month period of time. This is known as the Plan Year. The Plan Year begins on January 1st and ends on December 31st. Certain valuations and distributions are made on the Anniversary Date of your Plan. This date is December 31st. The contributions made to your Plan will be held and invested by the Trustee of your Plan. Your Plan and Trust will be governed by the laws of the State of Georgia. 2. Employer Information Your Employer's name, address and identification number are: MELITA INTERNATIONAL CORPORATION 5051 PEACHTREE CORNERS CIR. NORCROSS, Georgia 30092 58-1378534 Your Plan allows other employers to adopt its provisions. You or your beneficiaries may examine or obtain a complete list of employers, if any, who have adopted your Plan by making a written request to the Administrator. 3. Plan Administrator Information The name, address and business telephone number of your Plan's Administrator are: 3 5 MELITA INTERNATIONAL CORPORATION 5051 PEACHTREE CORNERS CIR. NORCROSS, Georgia 30092 770-446-7800 Your Plan's Administrator keeps the records for the Plan and is responsible for the administration of the Plan. The Administrator has discretionary authority to construe the terms of the Plan and make determinations on questions which may affect your eligibility for benefits. Your Plan's Administrator will also answer any questions you may have about your Plan. 4. Plan Trustee Information The names of your Plan's Trustees are: ALEKSANDER SZLAM HALINA SZLAM The Trustees will collectively be referred to as Trustee throughout this Summary Plan Description. The principal place of business of your Plan's Trustee is 5051 PEACHTREE CORNERS CIR. NORCROSS, Georgia 30092 Your Plan's Trustee has been designated to hold and invest Plan assets for the benefit of you and other Plan participants. The trust fund established by the Plan's Trustee will be the funding medium used for the accumulation of assets from which benefits will be distributed. 5. Service of Legal Process The name and address of your Plan's agent for service of legal process are: MELITA INTERNATIONAL CORPORATION 5051 PEACHTREE CORNERS CIR. NORCROSS, Georgia 30092 Service of legal process may also be made upon the Trustee or Administrator. III PARTICIPATION IN YOUR PLAN Before you become a member or a "participant" in the Plan, there are certain eligibility and participation rules which you must meet. These rules are explained in this Section. 4 6 1. Eligibility Requirements You will be eligible to participate in the Plan if you have completed one (1) Year of Service. You should review the Article in this Summary entitled "YEAR OF SERVICE RULES" for a further explanation of these eligibility requirements. 2. Participation Requirements Once you have satisfied your Plan's eligibility requirements, your next step will be to actually become a member or a "participant" in the Plan. You will become a participant on a specified day of the Plan Year. This day is called the Effective Date of Participation. You will become a participant on the earlier of the first day of the Plan Year or the first day of the seventh month of the Plan Year coinciding with or next following the date you satisfy your Plan's eligibility requirements. IV CONTRIBUTIONS TO YOUR PLAN 1. Employer Contributions to the Plan Each year, your Employer will contribute to your Plan the following amounts: (a) The total amount of the salary reduction you elected to defer. (See the Section in this Article entitled "Participant Salary Reduction Election.") (b) A discretionary matching contribution equal to a percentage of the amount of the salary reduction you elected to defer, which percentage will be determined each year by the Employer. For a participant to qualify for a matching contribution, the following conditions apply: - If you are actively employed on the last day of the Plan Year, you will share if you completed a Year of Service. - If you terminate employment (not actively employed on the last day of the Plan Year), you will not receive a matching contribution regardless of the number of Hours of Service credited for the Plan Year. - You will share in the matching contribution for the year regardless of the number of Hours of Service credited in the year of your death, disability or retirement. 5 7 These rules may have been different for Plan Years beginning prior to the date your Employer actually adopted this amendment. You should refer to any prior Summary Plan Description or your Administrator if you have any questions. (c) A discretionary amount determined each year by your Employer. For a participant to qualify for the discretionary contribution, the following conditions apply: - If you are actively employed on the last day of the Plan Year, you will share if you completed a Year of Service. - If you terminate employment (not actively employed on the last day of the Plan Year), you will not share regardless of the number of Hours of Service credited for the Plan Year. - You will share for the year regardless of the number of Hours of Service credited in the year of your death, disability or retirement. These rules may have been different for Plan Years beginning prior to the date your Employer actually adopted this amendment. You should refer to any prior Summary Plan Description or your Administrator if you have any questions. 2. Participant Salary Reduction Election As a participant, you may elect to defer up to 15% of your compensation each year instead of receiving that amount in cash. However, your total deferrals in any taxable year may not exceed a dollar limit which is set by law. The limit for 1995 is $9,240. This limit will be increased in future years for cost of living changes. You may elect to defer your salary as of January 1 & July 1. Such election will become effective as soon as administratively feasible. Your election will remain in effect until you modify or terminate it. You may modify your election as of January 1 & July 1 of any year. The modification will become effective as soon as administratively feasible. The amount you elect to defer, and any earnings on that amount, will not be subject to income tax until it is actually distributed to you. This money will, however, be subject to Social Security taxes at all times. You should also be aware that the annual dollar limit is an aggregate limit which applies to all deferrals you may make under this plan or other cash or deferred arrangements (including tax-sheltered 403(b) annuity contracts, simplified employee pensions or other 401(k) plans in which you may be participating). Generally, if your total deferrals under all cash or deferred arrangements for a calendar year exceed the annual dollar limit, the excess must be included in your income for the year. For this reason, it is desirable to request in writing that these excess 6 8 deferrals be returned to you. If you fail to request such a return, you may be taxed a second time when the excess deferral is ultimately distributed from the Plan. You must decide which plan or arrangement you would like to have return the excess. If you decide that the excess should be distributed from this Plan, you should communicate this in writing to the Administrator no later than the March 1st following the close of the calendar year in which such excess deferrals were made. The Administrator may then return the excess deferral and any earnings to you by April 15th. In the event you receive a hardship distribution from your deferrals to any other plan maintained by your Employer, you will not be allowed to make additional salary reductions for a period of twelve (12) months after you receive the distribution. Furthermore, the dollar limitation set by law with respect to your taxable year following the year in which you received the distribution, will be reduced by your salary reductions, if any, for the taxable year of the distribution. You will always be 100% vested in the amount you deferred. This means that you will always be entitled to all of the deferred amount. This money will, however, be affected by any investment gains or losses. If the Trustee invested this money and there was a gain, the balance in your account would increase. Of course, if there was a loss, the balance in your account would decrease. Distributions from your deferred account are not permitted before age 59 1/2 EXCEPT in the event of: (a) death; (b) disability; or (c) termination of employment. In addition, if you are a highly compensated employee (generally owners, officers or individuals receiving wages in excess of certain amounts established by law), a distribution from your deferred account of certain excess contributions may be required to comply with the law. The Administrator will notify you when a distribution is required. 3. Your Share of Employer Contributions Your Employer will allocate the amount you elect to defer to an account maintained on your behalf. If you are eligible, your Employer will also allocate the matching contribution made to the Plan on your behalf. (See the Section in this Article entitled "Employer Contributions to the Plan.") Your Employer's discretionary contribution will be "allocated" or divided among participants eligible to share in the contribution for the Plan Year. Your share of the contribution 7 9 will depend upon how much compensation you received during the year and the compensation received by other eligible participants. Your share of your Employer's discretionary contribution is determined by the following fraction: Your Compensation -------------------------------- Employer's Total Compensation of All Participants Discretionary Contribution x Eligible to Share For example:
Suppose the Employer's discretionary contribution for the Plan Year is $20,000. Employee A's compensation for the Plan Year is $25,000. The total compensation of all participants eligible to share, including Employee A, is $250,000. Employee A's share will be: $20,000 x $25,000 or $2,000 -------- $250,000 In addition to the Employer's contributions made to your account, your account will be credited annually with a share of the investment earnings or losses of the trust fund. You should also be aware that the law imposes certain limits on how much money may be allocated to your account for a year. These limits are extremely complex, but generally no more than the lesser of $30,000 or 25% of your compensation may be allocated to you (excluding earnings) in any year. The Administrator will inform you if these limits have affected you. 4. Compensation For the purposes of your Plan, compensation has a special meaning. Compensation is defined as your total salary, wages and other amounts which are includable in your income for purposes of income taxes that is paid during the Plan Year. However, the following will be excluded: -- commissions -- reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits. In addition, salary reduction contributions to any cafeteria plan, tax sheltered annuity, SEP or 401(k) Plan will be included as compensation for Plan purposes. 8 10 Your compensation will be recognized for benefit purposes from your date of entry into the Plan. For Plan Years beginning in 1994, the Plan, by law, cannot recognize compensation in excess of $150,000. This amount will be adjusted in future years for cost of living increases. It will also be applied to certain highly compensated employees and their family members as if they were a single participant. If you or a member of your family may be affected by this rule, ask your Administrator for further details. 5. Forfeitures Forfeitures are created when participants terminate employment before becoming entitled to their full benefits under the Plan. Your account may grow from the forfeitures of other participants. Forfeitures will be "allocated" or divided among participants eligible to share for a Plan Year. However, a portion of forfeited amounts will be used to reduce your Employer's contributions to the Plan. 6. Transfers From Qualified Plans (Rollovers) At the discretion of the Administrator, you may be permitted to deposit into your Plan distributions you have received from other plans. Such a deposit is called a "rollover" and may result in tax savings to you. You should consult qualified counsel to determine if a rollover is in your best interest. Your rollover will be placed in a separate account called a "participant's rollover account." The Administrator may establish rules for investment. You will always be 100% vested in your "rollover account." This means that you will always be entitled to all of your rollover contributions. Rollover contributions will be affected by any investment gains or losses. If the Trustee invested this money and there was a gain, the balance in your account would increase. Of course, if there was a loss from an investment, the balance in your account would decrease. V BENEFITS UNDER YOUR PLAN 1. Distribution of Benefits Upon Normal Retirement Your Normal Retirement Date is the Anniversary Date coinciding with or next following your 65th birthday (Normal Retirement Age). At your Normal Retirement Age, you will be entitled to 100% of your account balance. Payment of your benefits will begin as soon as practicable following your Normal Retirement Date. 9 11 2. Distribution of Benefits Upon Late Retirement You may remain employed past your Plan's Normal Retirement Date and retire instead on your Late Retirement Date. Your Late Retirement Date is the Anniversary Date coinciding with or next following the date you choose to retire, after first having reached your Normal Retirement Date. On your Late Retirement Date, you will be entitled to 100% of your account balance. Actual benefit payments will begin as soon as practicable following your Late Retirement Date. 3. Distribution of Benefits Upon Death Your beneficiary will be entitled to 100% of your account balance upon your death and 50% of such account balance is the "spouse's death benefit." If you are married at the time of your death, your spouse will be the beneficiary of the "spouse's death benefit," which will be equal in value to 50% of your account balance as of your date of death. You may elect in writing, on a form to be furnished to you by the Administrator, a beneficiary for the "spouse's death benefit" other than your spouse. IF YOU WISH TO DESIGNATE A BENEFICIARY OTHER THAN YOUR SPOUSE, YOUR SPOUSE MUST IRREVOCABLY CONSENT TO WAIVE ANY RIGHT TO THE "SPOUSE'S DEATH BENEFIT." YOUR SPOUSE'S CONSENT MUST BE IN WRITING, BE WITNESSED BY A NOTARY OR A PLAN REPRESENTATIVE AND ACKNOWLEDGE THE SPECIFIC NONSPOUSE BENEFICIARY. If no valid waiver is in effect, the "spouse's death benefit" payable to your spouse will be in the form of a survivor annuity, that is, periodic payments over the life of your spouse. Your spouse may direct that payments begin within a reasonable period of time after your death. The size of the monthly payments will depend on the value of your account at the time of your death. The death benefit may also be distributed in a single lump sum, provided your spouse consents in writing to this alternative form. Generally, the period during which you and your spouse may waive this survivor annuity begins as of the first day of the Plan Year in which you reach age 35 and ends when you die. The Administrator must provide you with a detailed explanation of the survivor annuity. This explanation must be given to you during the period of time beginning on the first day of the Plan Year in which you reach age 32 and ending on the first day of the Plan Year in which you reach age 35. It is, therefore, important that you inform the Administrator when you reach age 32 so that you may receive this information. If, however, (a) your spouse has validly waived any right to the death benefit in the manner outlined above, 10 12 (b) your spouse cannot be located; or (c) you are not married at the time of your death, then the "spouse's death benefit" will be paid to the beneficiary of your own choosing in a single lump sum. You may designate the beneficiary on a form to be supplied to you by the Administrator. If you change your designation, your spouse must again consent to the change. Also, since the death benefit upon your death is your entire account balance, you may, at all times, designate the beneficiary for amounts in excess of the "spouse's death benefit" without your spouse's consent. Under a special rule, you and your spouse may waive the survivor annuity form of payment any time before you reach age 35. However, any waiver will become invalid at the beginning of the Plan Year in which you reach age 35, and you and your spouse will be required to make another waiver. Regardless of the method of distribution selected, your entire death benefit must be paid to your beneficiaries within five years after your death. Since your spouse participates in these elections and has certain rights in the death benefit, you should immediately report any change in your marital status to the Administrator. 4. Distribution of Benefits Upon Disability Under your Plan, disability is defined as a physical or mental condition resulting from bodily injury, disease, or mental disorder which renders you incapable of continuing any gainful occupation with your Employer. Your disability will be determined by a licensed physician chosen by the Administrator. However, if your condition constitutes total disability under the federal Social Security Act, then the Administrator may deem that you are disabled for purposes of the Plan. If you become disabled while a participant, you will be entitled to 100% of your account balance. Payment of your disability benefits will be made to you as if you had retired. (See the Section in this Article entitled "Benefit Payment Options.") 5. Distribution of Benefits Upon Termination of Employment Your Plan is designed to encourage you to stay with your Employer until retirement. Payment of your account balance under your Plan is generally only available upon your death, disability or retirement. If your employment terminates for reasons other than those listed above, you will be entitled to receive only your "vested percentage" of your account balance and the remainder of your account will be forfeited. Only contributions made by your Employer are subject to forfeiture. (See the Section in this Article entitled "Vesting in Your Plan.") 11 13 Distributions may be made at the participant's election on or after the anniversary date of semi-annual anniversary date following the date of termination. If your vested benefit under the Plan at the time of any prior distribution exceeded $3,500 or currently exceeds $3,500, you (and your spouse, if you are married) must give written consent before the distribution may be made. Also, if you want the distribution to be in a form other than an annuity payment, you and your spouse must first waive the annuity form of payment. Amounts of $3,500 or less will be distributed early without the need for consent. (See the Section in this Article entitled "Benefit Payment Options" for a further explanation of how benefits are paid from the Plan.) Under the Plan's administrative procedures, if the value of your vested account is zero, any non-vested account balance will be forfeited immediately. 6. Vesting in Your Plan Your "vested percentage" in your account is determined under the following schedule and is based on vesting Years of Service. You will always, however, be 100% vested upon your Normal Retirement Age. (See the Section in this Article entitled "Distribution of Benefits Upon Normal Retirement.") Vesting Schedule Years of Service Percentage 2 20 % 3 40 % 4 60 % 5 80 % 6 100 % Regardless of this vesting schedule, you are always 100% vested in your salary reduction amounts contributed to the Plan. Your vested percentage will not be less than your vested percentage under the Plan before this amendment and restatement. 7. Benefit Payment Options There are various methods by which benefits may be distributed to you from your Plan. The method depends on your marital status, as well as the elections you and your spouse make. All methods of distribution, however, have equivalent values. The rules under this Section apply to all distributions you will receive from the Plan, whether by reason of retirement, termination, or any other event which may result in a distribution of benefits. If you are married on the date your benefits are to begin, you will automatically receive a joint and 50% survivor annuity, unless you otherwise elect. This means that if you die and are 12 14 survived by a spouse, your spouse will receive a monthly benefit for the remainder of his life equal to 50% of the benefit you were receiving at the time of your death. You may elect a joint and 75% or 100% survivor annuity instead of the standard joint and 50% survivor annuity. It should be noted that a joint and survivor annuity may provide a lower monthly benefit than other forms of payment. You should consult qualified tax counsel before making such election. If you are not married on the date your benefits are to begin, you will automatically receive a life annuity, which means you will receive payments for as long as you live. You may, however, elect to waive these forms of payment, subject to the following rules. When you are about to receive any distribution, the Administrator will explain the joint and survivor annuity or the life annuity to you in greater detail. You will be given the option of waiving the joint and survivor annuity or the life annuity form of payment during the 90-day period before the annuity is to begin. IF YOU ARE MARRIED, YOUR SPOUSE MUST IRREVOCABLY CONSENT IN WRITING TO THE WAIVER IN THE PRESENCE OF A NOTARY OR A PLAN REPRESENTATIVE. You may revoke any waiver. The Administrator will provide you with forms to make these elections. Since your spouse participates in these elections, you must immediately inform the Administrator of any change in your marital status. If you and your spouse elect not to take a joint and survivor annuity, or if you are not married when your benefits are scheduled to begin and have elected not to take a life annuity, you may elect to receive your benefits in one lump-sum payment in cash or in property. Regardless of the form of payment you receive, its value to you will be the same value as each alternative form of payment. GENERALLY, WHENEVER A DISTRIBUTION IS TO BE MADE TO YOU ON OR BEFORE AN ANNIVERSARY DATE, IT MAY BE POSTPONED BY THE PLAN FOR A PERIOD OF UP TO 180 DAYS, FOR ADMINISTRATIVE CONVENIENCE. HOWEVER, UNLESS YOU ELECT IN WRITING TO DEFER THE RECEIPT OF BENEFITS, NO DISTRIBUTION MAY BEGIN LATER THAN THE 60TH DAY AFTER THE CLOSE OF THE PLAN YEAR IN WHICH THE LATEST OF THE FOLLOWING EVENTS OCCURS: (a) the date on which you reach the age of 65 or your Normal Retirement Age; (b) the 10th anniversary of the year in which you became a participant in the Plan; (c) the date you terminated employment with your Employer. Regardless of whether you elect to delay the receipt of benefits, there are other rules which generally require minimum payments to begin no later than the April 1st following the year in which you reach age 70 1/2. You should see the Administrator if you feel you may be affected by this rule. 13 15 8. Treatment of Distributions From Your Plan Whenever you receive a distribution from your Plan, it will normally be subject to income taxes. You may, however, reduce, or defer entirely, the tax due on your distribution through use of one of the following methods: (a) The rollover of all or a portion of the distribution to an Individual Retirement Account (IRA) or another qualified employer plan. This will result in no tax being due until you begin withdrawing funds from the IRA or other qualified employer plan. The rollover of the distribution, however, MUST be made within strict time frames (normally, within 60 days after you receive your distribution). Under certain circumstances all or a portion of a distribution may not qualify for this rollover treatment. In addition, most distributions will be subject to mandatory federal income tax withholding at a rate of 20%. This will reduce the amount you actually receive. For this reason, if you wish to roll over all or a portion of your distribution amount, the direct transfer option described in paragraph (b) below would be the better choice. (b) You may request that a direct transfer of all or a portion of your distribution amount be made to either an Individual Retirement Account (IRA) or another qualified employer plan willing to accept the transfer. A direct transfer will result in no tax being due until you withdraw funds from the IRA or other qualified employer plan. Like the rollover, under certain circumstances all or a portion of the amount to be distributed may not qualify for this direct transfer. If you elect to actually receive the distribution rather than request a direct transfer, then in most cases 20% of the distribution amount will be withheld for federal income tax purposes. If you decide to directly transfer all or a portion of your distribution amount, you (and your spouse, if you are married) must first waive the annuity form of payment. (See the Section in this Article entitled "Benefit Payment Options" for a further explanation of this waiver requirement.) (c) The election of favorable income tax treatment under "10-year forward averaging," "5-year forward averaging" or, if you qualify, "capital gains" method of taxation. WHENEVER YOU RECEIVE A DISTRIBUTION, THE ADMINISTRATOR WILL DELIVER TO YOU A MORE DETAILED EXPLANATION OF THESE OPTIONS. HOWEVER, THE RULES WHICH DETERMINE WHETHER YOU QUALIFY FOR FAVORABLE TAX TREATMENT ARE VERY COMPLEX. YOU SHOULD CONSULT WITH QUALIFIED TAX COUNSEL BEFORE MAKING A CHOICE. 9. Domestic Relations Order As a general rule, your interest in your account, including your "vested interest," may not be alienated. This means that your interest may not be sold, used as collateral for a loan, given away or otherwise transferred. In addition, your creditors may not attach, garnish or otherwise interfere with your account. 14 16 There is an exception, however, to this general rule. The Administrator may be required by law to recognize obligations you incur as a result of court ordered child support or alimony payments. The Administrator must honor a "qualified domestic relations order." A "qualified domestic relations order" is defined as a decree or order issued by a court that obligates you to pay child support or alimony, or otherwise allocates a portion of your assets in the Plan to your spouse, former spouse, child or other dependent. If a qualified domestic relations order is received by the Administrator, all or a portion of your benefits may be used to satisfy the obligation. The Administrator will determine the validity of any domestic relations order received. 10. Pension Benefit Guaranty Corporation Benefits provided by your Plan are NOT insured by the Pension Benefit Guaranty Corporation (PBGC) under Title IV of the Employee Retirement Income Security Act of 1974 because the insurance provisions under ERISA are not applicable to your Plan. VI YEAR OF SERVICE RULES 1. Year of Service and Hour of Service The term "Year of Service" is used throughout this Summary Plan Description and throughout your Plan. A Year of Service for eligibility purposes is defined as follows: You will have completed a Year of Service if, at the end of your first twelve consecutive months of employment with your Employer, you have been credited with 1000 Hours of Service. If you have not been credited with 1000 Hours of Service by the end of your first twelve consecutive months of employment, you will have completed a Year of Service at the end of any following Plan Year during which you were credited with 1000 Hours of Service. You will have completed a Year of Service for vesting purposes if you are credited with 1000 Hours of Service during a Plan Year, even if you were not employed on the first or last day of the Plan Year. You will have completed a Year of Service for purposes of sharing in Employer contributions if you are credited with 1000 Hours of Service during a Plan Year. Also, for the purposes of the Plan, your Years of Service with Melita Electronic Labs, Inc. / Melita Europe, Ltd. will be recognized. An "Hour of Service" has a special meaning for Plan purposes. You will be credited with an Hour of Service for: (a) each hour for which you are directly or indirectly compensated by your Employer for the performance of duties during the Plan Year; 15 17 (b) each hour for which you are directly or indirectly compensated by your Employer for reasons other than performance of duties (such as vacation, holidays, sickness, disability, lay-off, military duty, jury duty or leave of absence during the Plan Year); and (c) each hour for back pay awarded or agreed to by your Employer. You will not be credited for the same Hours of Service both under (a) or (b), as the case may be, and under (c). 2. 1-Year Break in Service A 1-Year Break in Service is a computation period during which you have not completed more than 500 Hours of Service with your Employer. A 1-Year Break in Service does NOT occur, however, in the computation period in which you enter or leave the Plan for reasons of: (a) an authorized leave of absence; (b) certain maternity or paternity absences. The Administrator will be required to credit you with Hours of Service for a maternity or paternity absence. These are absences taken on account of pregnancy, birth, or adoption of your child. No more than 501 Hours of Service will be credited for this purpose and these Hours of Service will be credited solely to avoid your incurring a 1-Year Break in Service. The Administrator may require you to furnish proof that your absence qualifies as a maternity or paternity absence. These break in service rules may be illustrated by the following examples: Employee A works 300 hours in a Plan Year. At the end of the Plan Year, Employee A will have a 1-Year Break in Service because she has worked less than 501 hours in a Plan Year. Employee B works 300 hours in a Plan Year and takes an authorized leave of absence for which he is credited with an additional 250 hours. Employee B will NOT have a 1-Year Break in Service because he is credited with more than 500 hours in a Plan Year. If you are reemployed after a 1-Year Break in Service and were vested in any portion of your account derived from Employer contributions, you will receive credit for all Years of Service credited to you before your 1-Year Break in Service. If you do not have a "vested interest" in the Employer contributions allocated to your account when you terminate your employment, you will lose credit for your pre-break Years of Service when your consecutive 1-Year Breaks in Service equal or exceed the greater of 5 years, or your pre-break Years of Service. For example: 16 18 Employee B terminated employment on January 1, 2000 with 2 Years of Service. Employee B was not vested at the time of his termination of employment. Employee B returns to work on January 1, 2003. Employee B will be credited with his 2 pre-break Years of Service because his period of termination (3 years) did not exceed 5 years. VII YOUR PLAN'S "TOP HEAVY RULES" 1. Explanation of "Top Heavy Rules" A 401(k) Profit Sharing Plan that primarily benefits "key employees" is called a "top heavy plan." Key employees are certain owners or officers of your Employer. A Plan is a "top heavy plan" when more than 60% of the contributions or benefits have been allocated to key employees. Each year, the Administrator is responsible for determining whether your Plan is a "top heavy plan." If your Plan becomes top heavy in any Plan Year, then non-key employees will be entitled to certain "top heavy minimum benefits," and other special rules will apply. Among these top heavy rules are the following: (a) Your Employer may be required to make a contribution equal to 3% of your compensation to your account; (b) If you are a participant in more than one Plan, you may not be entitled to minimum benefits under both Plans. VIII CLAIMS BY PARTICIPANTS AND BENEFICIARIES Benefits will be paid to participants and their beneficiaries without the necessity of formal claims. You or your beneficiaries, however, may make a request for any Plan benefits to which you may be entitled. Any such request must be made in writing, and it should be made to the Administrator. (See the Article in this Summary entitled "GENERAL INFORMATION ABOUT YOUR PLAN.") Your request for Plan benefits will be considered a claim for Plan benefits, and it will be subject to a full and fair review. If your claim is wholly or partially denied, the Administrator will furnish you with a written notice of this denial. This written notice must be provided to you within a reasonable period of time (generally 90 days) after the receipt of your claim by the Administrator. The written notice must contain the following information: (a) the specific reason or reasons for the denial; (b) specific reference to those Plan provisions on which the denial is based; 17 19 (c) a description of any additional information or material necessary to correct your claim and an explanation of why such material or information is necessary; and (d) appropriate information as to the steps to be taken if you or your beneficiary wishes to submit your claim for review. If notice of the denial of a claim is not furnished to you in accordance with the above within a reasonable period of time, your claim will be deemed denied. You will then be permitted to proceed to the review stage described in the following paragraphs. If your claim has been denied, and you wish to submit your claim for review, you must follow the Claims Review Procedure. 1. The Claims Review Procedure (a) Upon the denial of your claim for benefits, you may file your claim for review, in writing, with the Administrator. (b) YOU MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER YOU HAVE RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF YOUR CLAIM FOR BENEFITS OR, IF NO WRITTEN DENIAL OF YOUR CLAIM WAS PROVIDED, NO LATER THAN 60 DAYS AFTER THE DEEMED DENIAL OF YOUR CLAIM. (c) You may review all pertinent documents relating to the denial of your claim and submit any issues and comments, in writing, to the Administrator. (d) Your claim for review must be given a full and fair review. If your claim is denied, the Administrator must provide you with written notice of this denial within 60 days after the Administrator's receipt of your written claim for review. There may be times when this 60-day period may be extended. This extension may only be made, however, where there are special circumstances which are communicated to you in writing within the 60-day period. If there is an extension, a decision will be made as soon as possible, but not later than 120 days after receipt by the Administrator of your claim for review. (e) The Administrator's decision on your claim for review will be communicated to you in writing and will include specific references to the pertinent Plan provisions on which the decision was based. (f) If the Administrator's decision on review is not furnished to you within the time limitations described above, your claim will be deemed denied on review. (g) If benefits are provided or administered by an insurance company, insurance service, or other similar organization which is subject to regulation under the insurance laws, the claims procedure relating to these benefits may provide for review. If 18 20 so, that company, service, or organization will be the entity to which claims are addressed. If you have any questions regarding the proper person or entity to address claims, you should ask the Administrator. IX STATEMENT OF ERISA RIGHTS 1. Explanation of Your ERISA Rights As a participant in this Plan you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974, also called ERISA. ERISA provides that all Plan participants are entitled to: (a) examine, without charge, all Plan documents, including: (1) insurance contracts; (2) collective bargaining agreements; and (3) copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports and Plan descriptions. This examination may take place at the Administrator's office and at other specified employment locations of the Employer. (See the Article in this Summary entitled "GENERAL INFORMATION ABOUT YOUR PLAN"); (b) obtain copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Administrator may make a reasonable charge for the copies; (c) receive a summary of the Plan's annual financial report. The Administrator is required by law to furnish each participant with a copy of this summary annual report; (d) obtain a statement telling you whether you have a right to receive a retirement benefit at Normal Retirement Age and, if so, what your benefits would be at Normal Retirement Age if you stop working under the Plan now. If you do not have a right to a retirement benefit, the statement will tell you how many years you have to work to get a right to a retirement benefit. THIS STATEMENT MUST BE REQUESTED IN WRITING AND IS NOT REQUIRED TO BE GIVEN MORE THAN ONCE A YEAR. The Plan must provide the statement free of charge. In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer or any other person, may fire 19 21 you or otherwise discriminate against you in any way to prevent you from obtaining a pension benefit or exercising your rights under ERISA. If your claim for a retirement benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Administrator review and reconsider your claim. (See the Article in this Summary entitled "CLAIMS BY PARTICIPANTS AND BENEFICIARIES.") Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Administrator to provide the materials and pay you up to $100.00 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If the Plan's fiduciaries misuse the Plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees if, for example, it finds your claim is frivolous. If you have any questions about this statement, or about your rights under ERISA, you should contact the nearest Area Office of the U.S. Labor-Management Services Administration, Department of Labor. X AMENDMENT AND TERMINATION OF YOUR PLAN 1. Amendment Your Employer has the right to amend your Plan at any time. In no event, however, will any amendment: (a) authorize or permit any part of the Plan assets to be used for purposes other than the exclusive benefit of participants or their beneficiaries; or (b) cause any reduction in the amount credited to your account; or (c) cause any part of your Plan assets to revert to the Employer. 2. Termination Your Employer has the right to terminate the Plan at any time. Upon termination, all amounts credited to your accounts will become 100% vested. 20 22 MELITA INTERNATIONAL CORPORATION 401(k) PROFIT SHARING PLAN SUMMARY OF MATERIAL MODIFICATIONS I. INTRODUCTION MELITA INTERNATIONAL CORPORATION has amended your 401(k) Profit Sharing Plan effective January 1, 1996. The purpose of this amendment is to add a loan provision and change the requirements for eligibility. This is merely a summary of the important changes to the Plan. If you have any questions, contact your Plan's Administrator. A copy of the Plan, including this amendment, is available for your inspection. If there is any discrepancy between the terms of the Plan and this Summary of Material Modifications, the provisions of the Plan will control. II. SUMMARY OF CHANGES Eligibility Requirements You will be eligible to participate in the Plan if you have completed 1/2 Year of Service. Loan Requirements 1. LOAN REQUIREMENTS There are various rules and requirements that apply for any loan. These rules are outlined in this Section. In addition, your Employer has established a written loan program which explains these requirements in more detail. You can request a copy of the loan program from the Administrator. Generally, the rules for loans include the following: (a) Loans must be made available to all participants and their beneficiaries on a uniform and non-discriminatory basis. (b) All loans must be adequately secured. You may use up to one-half (1/2) of your vested account balance under the Plan as security for the loan. If more security is required, your principal residence may be used, if permitted by State law. The Plan may also require that repayments on the loan obligation be by payroll deduction. 23 (c) All loans must bear a reasonable rate of interest. The interest rate must be one a bank or other professional lender would charge for making a loan in a similar circumstance. (d) All loan must have a definite repayment period which provides for payments to be made not less frequently than quarterly and for the loan to be amortized on a level basis over a reasonable period of time, not to exceed five (5) years. However, if you use the loan to acquire your principal residence, you may repay the loan over a reasonable period of time that may be longer than five (5) years. (e) All loans will be considered a directed investment from your account under the Plan. All payments of principal and interest by you on a loan will be credited to your account. (f) The amount the Plan may loan to you is limited by rules under the Internal Revenue Code. All loans, when added to the outstanding balance of all other loans from the Plan, will be limited to the lesser of: (1) $50,000 reduced by the excess, if any, of your highest outstanding balance of loans from the Plan during the one-year period prior to the date of the loan over your current outstanding balance of loans; or (2) 1/2 of your vested account balance. The $50,000 limit stated in (1) above will not be reduced for loans made on or before December 31, 1986. Also, no loan in an amount less than $1,000 will be made. (g) Your spouse must consent to any loan before it can be made if you use your vested interest as security for the loan. This rule only applies if the vested interest used as security exceeds $3,500. (h) Loans will only be granted if you incur a financial hardship or have a specified financial need. For this purpose, if you or a member of your immediate family incur significant health expenses or a loss of income due to illness, disability or death, you may apply for a loan. Your Employer may also grant loans to help you establish your principal residence or to pay for a college education, including graduate studies, for you or your dependents. (i) If you fail to make payments when they are due under the loan, you will be considered to be "in default". The Trustee would then have authority to take all reasonable actions to collect the balance owing on the loan. This could include filing a lawsuit or foreclosing on the security for the loan. Under certain circumstances, a loan that is in default may be considered a distribution from the Plan, and could result in -2- 24 taxable income to you. In any event, your failure to repay a loan will reduce the benefit you would otherwise be entitled to from the Plan. (j) Loans will not be made to any "Shareholder-employees" unless exemptions for such loans are obtained from the Department of Labor. A shareholder-employee is a participant who owns more than 5% of your Employer's outstanding capital stock during any year in which your Employer elects to be taxed as a small business corporation. -3- 25 MELITA INTERNATIONAL CORPORATION 401(K) PROFIT SHARING PLAN PARTICIPANT LOAN PROGRAM MELITA INTERNATIONAL CORPORATION 401(k) PROFIT SHARING PLAN permits loans to be made to Participants and their beneficiaries. However, before any loan is made, the Plan requires that a written loan program be established which sets forth the rules and guidelines for making Participant loans. This document shall serve as the required written loan program. In addition, the Administrator may use this document to serve as, or supplement, any required notice of the loan program to Participants and their beneficiaries. All references to Participants in this loan program shall include Participants and their Beneficiaries who are "parties in interest" as defined by Act Section 3(14). 1. The Administrator of the Plan is authorized to administer the Participant loan program. All applications for loans shall be made by a Participant to the Administrator on forms which the Administrator will make available for such purpose. 2. All loan applications shall be considered by the Administrator within a reasonable time after the Participant makes formal application. The Participant shall also be required to provide such supporting information deemed necessary by the Administrator. This may include a financial statement, tax returns and such other financial information which the Administrator may consider necessary and appropriate to determine whether a loan should be granted. Furthermore, the Participant shall authorize the Administrator to obtain a credit report on the Participant. 3. The Administrator shall determine whether a Participant qualifies for a loan, applying such criteria as a commercial lender of funds would apply in like circumstances with respect to the Participant. Such criteria shall include, but not be limited to, the creditworthiness of the Participant and his general ability to repay the loan, the period of time such Participant has been employed by the Employer, whether adequate security has been provided for the loan, and whether the Participant agrees, as a condition for receiving the loan, to make repayments through direct, after-tax payroll deduction. 4. With regard to any loan made pursuant to this program, the following rule(s) and limitation(s) shall apply, in addition to such other requirements set forth in the Plan: (i) Loans shall only be granted from salary reductions. (ii) No loan in an amount less than $1,000 shall be granted to any Participant. (iii) No loan shall be granted to any Participant having a loan currently outstanding from the Plan. 26 (iv) Loans shall only be granted in the event of a Participant's hardship or for the purpose of enabling a Participant to meet certain specified financial situations. For this purpose, a loan shall be authorized in the event of significant health expenses or loss of income resulting from a prolonged illness or disability of the Participant, loss of income or significant health expenses resulting from a prolonged illness, disability or death in the Participant's immediate family, establishing the principal residence of the Participant, or for paying for a college education (including graduate studies) for the Participant or his dependents. The Administrator shall determine whether a Participant qualifies for a loan under this paragraph. (iv) All loans made pursuant to this program shall be considered a directed investment from the account(s) of the Participant maintained under the Plan. As such, all payments of principal and interest made by the Participant shall be credited only to the account(s) of such Participant. 5. Any loan granted or renewed under this program shall bear a reasonable rate of interest. In determining such rate of interest, the Plan shall require a rate of return commensurate with the prevailing interest rate charged on similar commercial loans under like circumstances by persons in the business of lending money. Such prevailing interest rate standard shall permit the Administrator to consider factors pertaining to the opportunity for gain and risk of loss that a professional lender would consider on a similar arms-length transaction, such as the creditworthiness of the Participant and the security given for the loan. Therefore, in establishing the rate of interest, the Administrator shall conduct a reasonable and prudent inquiry with professional lenders in the same geographic locale where the Participant and Employer reside to determine such prevailing interest rate for loans under like circumstances. 6. The Plan shall require that adequate security be provided by the Participant before a loan is granted. For this purpose, the Plan shall consider a Participant's interest under the Plan to be adequate security. However, in no event shall more than 50% of a Participant's vested interest in the Plan (determined immediately after origination of the loan) be used as security for the loan. Generally, it shall be the policy of the Plan not to make loans which require security other than the Participant's vested interest in the Plan. However, if additional security is necessary to adequately secure the loan, then the Administrator shall require that such security be provided before the loan will be granted. For this purpose, the Participant's principal residence may serve as additional security. 7. All loans must have a definite repayment period which provides for payments to be made not less frequently than quarterly, and for the loan to be amortized on a level basis over a reasonable period of time, not to exceed five (5) years. However, if the Participant uses the loan to acquire his/her principal residence, they may repay the loan over a reasonable period of time that may be longer than five (5) years. -2- 27 8. Generally, a default shall occur upon the failure of a Participant to timely remit payments under the loan when due. In such event, the Trustee shall take such reasonable actions which a prudent fiduciary in like circumstances would take to protect and preserve Plan assets, including foreclosing on any collateral and commencing such other legal action for collection which the Trustee deems necessary and advisable. However, the Trustee shall not be required to commence such actions immediately upon a default. Instead, the Trustee may grant the Participant reasonable rights to cure any default, provided such actions would constitute a prudent and reasonable course of conduct for a professional lender in like circumstances. In addition, if no risk of loss of principal or income would result to the Plan, the Trustee may choose, in its discretion, to defer enforcement proceedings. If the qualified status of the Plan is not jeopardized, the Trustee and the Administrator may treat a loan that has been defaulted upon and not cured within a reasonable period of time as a deemed distribution from the Plan. 9. Upon satisfaction of the criteria established for granting a loan, the Administrator shall inform the Trustee that the Participant has qualified to receive a loan under the Plan's program. The Trustee shall review the determination made by the Administrator (including the prevailing interest rate which has been set for the loan) and, if it determines that such loan would be a prudent investment for the Plan, applying such fiduciary standards required by ERISA, the Trustee may grant the loan request. In making such determination, the Trustee may consider the liquidity of the Plan assets available for loans. The Trustee shall then require that the Participant execute all documents necessary to establish the loan, including a promissory note and such other documents which will provide the Plan with adequate security. 10. The loan set-up and origination fee is the sole responsibility of the Participant. The fee is set up as $150.00 per loan. -3- 28 Adopted this 2nd day of May, 1996. The loan program may be amended from time to time. EMPLOYER: /s/ Alexksander Szlam, CEO - ---------------------------------- TRUSTEE: /s/ Alexksander Szlam - ---------------------------------- TRUSTEE: /s/ Hamlina Szlam - ---------------------------------- ADMINISTRATOR: /s/ Alexksander Szlam - ---------------------------------- -4- EX-10.6 12 EMPLOYMENT AGREEMENT (SZLAM) 1 EXHIBIT 10.6 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 5th day of March, 1997 between Alek Szlam, an individual resident of the State of Georgia ("Executive"), and Melita International Corporation, a Georgia corporation with its principal place of business located in Norcross, Georgia ("the Company"). WHEREAS, the Company desires to employ Executive as the Chief Executive Officer of the Company, and Executive desires to accept said employment from the Company; and WHEREAS, the Company and Executive have agreed upon the terms and conditions of Executive's employment with the Company and the parties desire to express the terms and conditions in this employment agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereby agree as follows: 1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs Executive, and Executive hereby accepts such employment from the Company, under the terms of this Agreement for a period beginning on the Effective Date and terminating on the date two (2) years thereafter (the "Term"). 2. DUTIES. During the Term of this Agreement, Executive shall be employed as the Board of Directors and the Chief Executive Officer of the Company. Executive's responsibilities as Chief Executive Officer shall be to plan for the future of the Company and to involve himself in the management and operations of the Company in a manner as he and the Board of Directors from time to time deem appropriate under the circumstances. The Executive shall devote his full business time, attention, skill, energies and efforts to the diligent performance of his duties hereunder, except during periods of illness or periods of vacation and leaves of absence consistent with the Company's policy. Executive shall establish his own work schedule for the performance of his duties as described in this Section 2. 3. BASE SALARY. Executive's base salary commencing on the Effective Date and during the Term of this Agreement shall be $300,000 per year (the "Base Salary"), which amount may be increased annually at the discretion of the Board of Directors. The Base Salary shall be paid to Executive by the Company monthly in arrears or in accordance with the Company's regular payroll practice as in effect from time to time. 4. ANNUAL BONUS. Immediately following completion of each fiscal year of the Company and no later than four (4) months after such date, Executive shall receive, in addition to the Base Salary, an annual performance bonus in the amount of $160,000. 2 5. BENEFITS AND OTHER COMPENSATION. Commencing on the Effective Date of this Agreement and during the Term of this Agreement, the Company shall provide the benefits described below. (a) Management Stock Incentive Program. The Executive shall participate in the Company's stock option, stock purchase or other stock incentive plan generally available to executive officers of the Company and shall be eligible for the grant of stock options, restricted stock and other awards thereunder. In addition the Company's Board of Directors shall annually consider the Executive's performance, and determine if any additional bonus is appropriate. (b) Vacation. Executive shall have the right to set his own reasonable vacation schedule as an integral part of Executive's right to set his own work schedule. (c) Medical Insurance and Other Benefits. The Company shall provide Executive with medical insurance coverage for Executive in accordance with the terms of the Company's medical insurance plan, if any, as it exists from time to time and shall provide Executive with coverage under all other employee benefit plans, programs and policies which the Company maintains from time to time for the benefit of its executive employees. (d) Expenses. Executive shall be reimbursed monthly by the Company for the ordinary and necessary business expenses incurred by him in the performance of his duties for the Company; provided that Executive shall first document said business expenses in the manner generally required by the Company under its standard employee business expense reimbursement policies and procedures. 6. TERMINATION; TERM. (a) The term of this Agreement (the "Term") shall commence on the Effective Date and end two (2) years thereafter. The term shall be automatically extended for successive two (2) year periods unless either party hereto delivers to the other written notice three (3) months prior to the end of the Term of its desire to terminate this Agreement. (b) Notwithstanding the terms of Section 6 (a) hereof, This Agreement and the Executive's employment hereunder may be terminated as follows: (i) immediately, without any notice by or to either party hereto, upon the death of the Executive; (ii) immediately by the Company for the Disability of the Executive upon delivery by the Company to the Executive of a Notice of Termination; or (iii) immediately by the Company for Cause upon delivery by the Company to the Executive of a Notice of Termination. -2- 3 (c) If the Executive's employment with the Company shall be terminated during the Term (i) by reason of the Executive's death, or (ii) by the Company for Disability or Cause, the Company shall pay to the Executive (or in the case of his death, the Executive's estate) within fifteen days after the Termination Date a lump sum cash payment equal to the Executive's Accrued Compensation. (d) The pay and benefits provided for in this Section 6 shall be in lieu of any other severance pay to which the Executive may be entitled under any Company severance plan, program, practice or arrangement. The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs, policies and practices then in effect. (e) The Base Salary, and benefits paid or provided herein, but no other additional compensation, shall be paid to Executive or his estate up to the effective date of termination of this Agreement for whatever reason, including the death of Executive, and not thereafter. 7. EXECUTIVE WORKS. Executive agrees that Executive will promptly disclose to the Company all Executive Works (defined below). Executive hereby irrevocably assigns to the Company all right, title and interest in and to any and all Executive Works, created by Executive at any time prior to Effective Date and Executive will execute, without requiring the Company to provide any further consideration therefor, such confirmatory assignments, instruments and documents as the Company deems necessary or desirable in order to effect such assignment. Executive further agrees that all Executive Works created by him during the course of his employment by the Company are the sole property of the Company and hereby assigns such Executive Works to the Company, and Executive will execute, without requiring the Company to provide any further consideration therefor, such confirmatory assignments, instruments and documents as the Company deems necessary or desirable in order to effect such assignment. The term "Executive Works" as used in this Agreement means any and all works of authorship, inventions, discoveries, improvements, designs, techniques, and work product, whether or not patentable, and in whatever form, which are created, made, developed or reduced to practice, or caused to be created, made, developed or reduced to practice by Executive during the course of his employment with the Company, including all worldwide copyrights, trade secrets, patent rights, and all confidential, proprietary and property rights therein, and that relate in any way to the current or future business of the Company or that result from any work performed by Executive for the Company. 8. WORKS MADE FOR HIRE. The Company and Executive acknowledge that in the course of Executive's employment by the Company, Executive may have created, or may create, for the Company or its customers certain works of authorship. Such works may consist of manuals, documentation, pamphlets, instructional materials, videodisks, computer programs, user interfaces, tapes or other copyrightable material, or portions thereof, and may be created within or without the Company's facilities and before, during or after normal business hours. All such works related to or useful in the business of the Company are specifically intended to be works -3- 4 made for hire by Executive and owned by the Company or its customers, as applicable, and Executive shall cooperate with the Company in the protection of the Company or its customer's, as applicable, copyrights therein and, to the extent deemed desirable by the Company or its customers, as applicable, the registration of such copyrights. 9. PRODUCTS, NOTES, RECORDS AND SOFTWARE. All memoranda, notes, records and other documents and computer software made or compiled by Executive during the course of Executive's employment by the Company or made available to him during the course of his employment by the Company, including, without limitation, all customer data, billing information, service data, and other technical material, confidential information and trade secrets of the Company and its affiliates, shall be the Company's property and Executive shall deliver all such materials (and all copies thereof) to the Company within three (3) days after any termination of his employment with the Company. 10. NONDISCLOSURE. Executive acknowledges and agrees that during his employment by the Company, he has had, or will have, access to trade secrets and other confidential or proprietary information peculiar to the Company, the disclosure or use of which would injure the Company. Therefore, Executive agrees that he will not use, reveal, or divulge any such trade secrets if such use, revelation, or divulgence would violate the Georgia Trade Secrets Act of 1990, as amended. In addition, Executive agrees that during his employment by the Company and after any termination thereafter, he will not, directly or indirectly, use, reveal, or divulge any such confidential information, proprietary information or trade secrets. However, Executive shall not be required to keep confidential any trade secrets or confidential or proprietary information of the Company which is or becomes publicly available, is independently developed by Executive outside of the scope of his employment relationship with the Company, or is rightfully obtained from third parties. 11. NONCOMPETITION. During the course of his employment by the Company and for a period of two (2) years after termination of his employment by the Company, Executive agrees that he shall not engage in or render services to any entity engaged in, the predictive dialing computer software business or any other business in which the Company is engaged during the course of his employment (the "Business") within the United States of America ("Territory"), and two (2) years thereafter. 12. NONSOLICITATION. (a) Customers. During his employment by the Company, Executive shall not, directly or indirectly without the Company's prior written consent, contact any customer of the Company, with whom Executive, in the ordinary course of his employment by the Company, had a material contact ("Customer") for business purposes unrelated to furthering the business of the Company. For a period of two (2) years following his employment by the Company, Executive shall not, directly or indirectly, (i) contact, solicit, divert or take away, any Customer for purposes of, or with respect to, selling a product or service which competes with the Business of the Company, or (ii) take any affirmative action in regard to establishing or continuing a -4- 5 relationship with a Customer for purposes of making, or which directly or indirectly results in, a sale of a product or service which competes with the Business of the Company. (b) Employees. During the employment of the Executive and for a period of two (2) years following any termination of employment of Executive, Executive shall not, directly or indirectly, recruit or hire, or attempt to recruit or hire, any other employees of the Company who were employed by the Company during the employment of the Executive and who are actively employed during the employment of the Executive or such two (2) year period. 13. REMEDY FOR BREACH. Executive agrees that remedies at law of the Company for any actual or threatened breach by Executive of any of the covenants contained in Section 7 through 12 of this Agreement would be inadequate and that the Company shall be entitled to specific performance by Executive of the covenants in such paragraphs or injunctive relief against activities in violation of such paragraphs, or both, by temporary or permanent injunction or other appropriate judicial remedy, writ or order, in addition to any damages and legal expenses (including attorney's fees) which the Company may be legally entitled to recover. Executive acknowledges and agrees that the covenants contained in Sections 7 through 12 of this Agreement shall be construed as agreements independent of any other provision of this or any other contract between the parties hereto, and that the existence of any claim or cause of action by Executive against the Company, whether predicated upon this or any other contract, shall not constitute a defense to the enforcement by the Company of said covenants. 14. SURVIVAL. The provisions of Sections 7 through 13 shall survive termination of this Agreement. 15. INVALIDITY OF ANY PROVISION. It is the intention of the parties hereto that Sections 7 through 12 of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of each state and jurisdiction in which such enforcement is sought, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision hereof shall not render unenforceable or impair the remainder of this Agreement which shall be deemed amended to delete or modify, as necessary, the invalid or unenforceable provisions. The parties further agree to alter the balance of this Agreement in order to render the same valid and enforceable. 16. APPLICABLE LAW. This Agreement is being executed in the State of Georgia and shall be construed and enforced in accordance with the internal laws of the State of Georgia, without giving effect to the conflicts laws of such state. 17. WAIVER OF BREACH. The waiver by the Company of a breach of any provision of this Agreement by Executive shall not operate or be construed as a waiver of any subsequent breach by Executive. 18. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its Successors and Assigns, and the Company shall require any Successors and Assigns to -5- 6 expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 19. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties. This Agreement may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, changes, modification, extension, or discharge is sought. 20. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Act" shall mean the Securities Act of 1933, as amended. (b) "Accrued Compensation" shall mean an amount, including all amounts earned or accrued through the Termination Date but not paid as of the Termination Date including, (i) base salary of the Executive, (ii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of the Company as of the Termination Date, and (iii) bonuses and incentive compensation owed to the Executive. (c) The termination of the Executive's employment shall be for "Cause" if it is a result of: (i) any act that the Board of Directors reasonably determines (A) constitutes, on the part of the Executive, fraud, dishonesty, gross malfeasance of duty, or conduct grossly inappropriate to the Executive's office, and (B) is demonstrably likely to lead to material injury to the Company or resulted or was intended to result in a material benefit to the Executive at the Company's expense; or (ii) the conviction (from which no appeal may be or is timely taken) of the Executive of a felony; provided, however, that in the case of clause (i) above, such conduct shall not constitute Cause (x) unless (A) there shall have been delivered to the Executive a written notice setting forth with specificity the reasons that the Board believes the Executive's conduct constitutes the criteria set forth in clause (i), (B) the Executive shall have been provided the opportunity to be heard in person by the Board (with the assistance of the Executive's counsel if the Executive so desires), and (C) after such hearing, the termination for Cause is approved by a resolution adopted in good faith by two-thirds of the members of the Board (other than the Executive). (d) "Disability" shall mean a physical or mental infirmity which materially impairs the Executive's ability to substantially perform any of the essential functions of his job with the -6- 7 Company for a period of 180 consecutive days, as determined by an independent physician selected with the approval of both the Company and the Executive. (e) "Effective Date" shall mean the day that the Company closes its Initial Public Offering. (f) "Initial Public Offering" shall mean the closing of the first public offering of the Company's common stock registered under the Act in which the aggregate proceeds to the Company, net of all underwriting discounts and commissions and other expenses of issuance and distribution as stated in the prospectus relating to such offering, are at least twenty-five million dollars ($25,000,000). (g) "Notice of Termination" shall mean a written notice of termination from the Company or the Executive which specifies an effective date of termination, indicates the specific termination provision in this Agreement relied upon, and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (h) "Successors and Assigns" shall mean, for a corporation, a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement), and for any individual as the Executive, the estate, successors or heirs, and/or the legal representative of the Executive, whether by operation of law or otherwise. (i) "Termination Date" shall mean, in the case of the Executive's death, his date of death, and in all other cases, the date specified in the Notice of Termination. -7- 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. EXECUTIVE: COMPANY: MELITA INTERNATIONAL CORPORATION /s/ Alek Szlam - ---------------------------- Alek Szlam By: /s/ J. Neil Smith -------------------------------------- J. Neil Smith, President and Chief Operating Officer -8- EX-10.7 13 EMPLOYMENT AGREEMENT (SMITH) 1 EXHIBIT 10.7 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 5th day of March, 1997 between J. Neil Smith, an individual resident of the State of Georgia ("Executive"), and Melita International Corporation, a Georgia corporation with its principal place of business located in Norcross, Georgia ("the Company"). WHEREAS, the Company desires to employ Executive as the President and Chief Operating Officer of the Company, and Executive desires to accept said employment from the Company; and WHEREAS, the Company and Executive have agreed upon the terms and conditions of Executive's employment with the Company and the parties desire to express the terms and conditions in this employment agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereby agree as follows: 1. EMPLOYMENT OF EXECUTIVE. The Company hereby employs Executive, and Executive hereby accepts such employment from the Company, under the terms of this Agreement for a period beginning on the Effective Date and terminating on July 31, 1999 (the "Term"). 2. DUTIES. During the Term of this Agreement, Executive shall be employed as the President and the Chief Operating Officer of the Company. Executive's responsibilities as the President and Chief Operating Officer of the Company shall be to take such action to involve himself in the general overall and day to day management and operations of the Company in a manner as he and the Board of Directors of the Company (the "Board of Directors") from time to time deem appropriate under the circumstances. 3. BASE SALARY. Executive's base salary commencing on the Effective Date and during the Term of this Agreement shall be $225,000 per fiscal year (the "Base Salary"), which amount may be increased annually at the discretion of the Board of Directors. The Base Salary shall be paid to Executive by the Company monthly in arrears or in accordance with the Company's regular payroll practice as in effect from time to time. 4. ANNUAL BONUS. Immediately following completion of each fiscal year of the Company and no later than four (4) months after such date, Executive shall receive, in addition to the Base Salary, an annual performance bonus as determined by the Board of Directors of up to $100,000 ("Annual Bonus"). 2 5. BENEFITS AND OTHER COMPENSATION. Commencing on the Effective Date of this Agreement and during the Term of this Agreement, the Company shall provide the benefits described below. (a) Management Stock Incentive Program. The Executive shall participate in the Company's stock option, stock purchase, or other stock incentive plan generally available to executive officers of the Company and shall be eligible for the grant of stock options, restricted stock and other awards thereunder. In addition, the Board of Directors shall annually consider the Executive's performance and determine if any additional bonus is appropriate for the Executive. Furthermore, the Company confirms that the Executive has received 450,000 stock options (the "IPO Options") under the Melita International Corporation 1992 Discounted Stock Option Plan (the "Stock Option Plan") to purchase, subject to the terms and conditions of the Plan, shares of the Company's common stock and that, in accordance with such plan and grant, all stock options granted by the Company to the Executive pursuant to the Stock Option Plan shall vest upon the occurrence of the Initial Public Offering. In accordance with the terms of the Stock Option Plan, no such IPO Options are exercisable by the Executive prior to 14 months after the Initial Public Offering. (b) Vacation. Executive shall have the right to vacation time in accordance with the vacation policy of the Company. (c) Medical Insurance and Other Benefits. The Company shall provide Executive with medical insurance coverage for Executive in accordance with the terms of the Company's medical insurance plan, if any, as it exists from time to time and shall provide Executive with coverage under all other employee benefit plans, programs and policies which the Company maintains from time to time for the benefit of its executive employees. (d) Expenses. Executive shall be reimbursed monthly by the Company for the ordinary and necessary business expenses incurred by him in the performance of his duties for the Company; provided that Executive shall first document said business expenses in the manner generally required by the Company under its standard employee business expense reimbursement policies and procedures. 6. TERMINATION; TERM. (a) The term of this Agreement (the "Term") shall commence on the Effective Date and end on July 31, 1999. The term shall be automatically extended for successive two (2) year periods unless either party hereto delivers to the other party written notice at least three (3) months prior to the end of the Term of its desire to terminate this Agreement. (b) Notwithstanding the terms of Section 6 (a) hereof, This Agreement and the Executive's employment hereunder may be terminated as follows: -2- 3 (i) immediately, without any notice by or to either party hereto, upon the death of the Executive; (ii) immediately by the Company for the Disability of the Executive upon delivery by the Company to the Executive of a Notice of Termination; (iii) immediately by the Company for Cause upon delivery by the Company to the Executive of a Notice of Termination; or (iv) by the Executive for Good Reason upon delivery by the Executive to the Company of a Notice of Termination. (c) If the Executive's employment with the Company shall be terminated during the Term (i) by reason of the Executive's death, or (ii) by the Company for Disability or Cause, the Company shall pay to the Executive (or in the case of his death, the Executive's estate) within fifteen days after the Termination Date a lump sum cash payment equal to the Executive's Accrued Compensation. In addition, if the Company terminates the Executive's employment with the Company other than for Cause, the Company shall pay to the Executive within fifteen days after the Termination date a lump sum cash payment equal to the Executive's Base Salary plus the stock rights provided in Section 6 (d) (ii) hereof. In the event of termination of this Agreement by reason of the death or Disability of the Executive, he, his estate or legal representatives shall also be entitled to the stock rights set forth in Section 6 (d) (ii) hereof. (d) If the Executive's employment with the Company shall be terminated by Executive for Good Reason, in addition to other rights and remedies available in law or equity, the Executive shall be entitled to the following: (i) the Company shall pay the Executive a lump sum cash payment within fifteen days of the Termination Date of an amount equal to Executive's Base Salary; (ii) the restrictions on any outstanding incentive awards (including stock options) granted to the Executive under any of the Company's stock option, stock purchase or under any other incentive plan or arrangement shall lapse and all stock options and stock appreciation rights granted to the Executive and shall become 100% vested and immediately exercisable. (e) In the event the Executive resigns from his employment with the Company, other than for Good Reason pursuant to Section 6(b)(iv) hereof, or is terminated by the Company for Cause, then the Executive shall receive Accrued Compensation and all of the IPO Options according to the following schedule if such resignation occurs: -3- 4 (i) before July 1, 1997, 25% of the IPO Options shall be vested and exercisable and the Executive shall exercise only such amount and the balance shall not and cannot ever be exercised; (ii) as of July 1, 1997, 50% of the IPO Options shall be vested and exercisable and the Executive shall exercise only such amount and the balance shall not and cannot ever be exercised; (iii) as July 1, 1998, 75% of the IPO Options shall be vested and exercisable and the Executive shall exercise only such amount and the balance shall not and cannot ever be exercised; and (iv) as of July 1, 1999, 100% of the IPO Options shall be vested and exercisable. (f) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment. (g) The severance pay and benefits provided for in this Section 6 shall be in lieu of any other severance pay to which the Executive may be entitled under any Company severance plan, program, practice or arrangement. The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs, policies and practices then in effect. (h) The benefits paid or provided herein shall be the only benefits paid to the Executive or his estate. 7. EXECUTIVE WORKS. Executive agrees that Executive will promptly disclose to the Company all Executive Works (defined below). Executive hereby irrevocably assigns to the Company all right, title and interest in and to any and all Executive Works, created by Executive at any time prior to Effective Date and Executive will execute, without requiring the Company to provide any further consideration therefor, such confirmatory assignments, instruments and documents as the Company deems necessary or desirable in order to effect such assignment. Executive further agrees that all Executive works created by him during the course of his employment by the Company are the sole property of the Company and hereby assigns such Executive Works to the Company, and Executive will execute, without requiring the Company to provide any further consideration therefor, such confirmatory assignments, instruments and documents as the Company deems necessary or desirable in order to effect such assignment. The term "Executive Works" as used in this Agreement means any and all works of authorship, inventions, discoveries, improvements, designs, techniques, and work product, whether or not patentable, and in whatever form, which are created, made, developed or reduced to practice, or caused to be created, made, developed or reduced to practice by Executive during the course of -4- 5 the Executive's employment by the Company, including all worldwide copyrights, trade secrets, patent rights, and all confidential, proprietary and property rights therein, and that relate in any way to the current or future business of the Company or that result from any work performed by Executive for the Company. 8. WORKS MADE FOR HIRE. The Company and Executive acknowledge that in the course of Executive's employment by the Company, Executive may have created, or may create, for the Company or its customers certain works of authorship. Such works may consist of manuals, documentation, pamphlets, instructional materials, videodisks, computer programs, user interfaces, tapes or other copyrightable material, or portions thereof, and may be created within or without the Company's facilities and before, during or after normal business hours. All such works related to or useful in the business of the Company are specifically intended to be works made for hire by Executive and owned by the Company or its customers, as applicable, and Executive shall cooperate with the Company in the protection of the Company or its customer's, as applicable, copyrights therein and, to the extent deemed desirable by the Company or its customers, as applicable, the registration of such copyrights. 9. PRODUCTS, NOTES, RECORDS AND SOFTWARE. All memoranda, notes, records and other documents and computer software made or compiled by Executive during the course of Executive's employment by the Company or made available to him during the course of his employment by the Company, including, without limitation, all customer data, billing information, service data, and other technical material, confidential information and trade secrets of the Company and its affiliates, shall be the Company's property and Executive shall deliver all such materials (and all copies thereof) to the Company within three (3) days after any termination of his employment with the Company. 10. NONDISCLOSURE. Executive acknowledges and agrees that during his employment by the Company, he has had, or will have, access to trade secrets and other confidential or proprietary information peculiar to the Company, the disclosure or use of which would injure the Company. Therefore, Executive agrees that he will not use, reveal, or divulge any such trade secrets if such use, revelation, or divulgence would violate the Georgia Trade Secrets Act of 1990, as amended. In addition, Executive agrees that during his employment by the Company and after any termination thereafter, he will not, directly or indirectly, use, reveal, or divulge any such confidential information, proprietary information or trade secrets. However, Executive shall not be required to keep confidential any trade secrets or confidential or proprietary information of the Company which is or becomes publicly available, is independently developed by Executive outside of the scope of his employment relationship with the Company, or is rightfully obtained from third parties. 11. NONCOMPETITION. During the course of his employment by the Company and for a period of two (2) years after termination of his employment by the Company, Executive agrees that he shall not engage in or render services to any entity engaged in, the predictive dialing computer software business or any other business in which the Company is engaged during the course of his employment (the "Business") within the United States of America ("Territory"), and two (2) years thereafter. -5- 6 12. NONSOLICITATION. (a) Customers. During his employment by the Company, Executive shall not, directly or indirectly without the Company's prior written consent, contact any customer of the Company, with whom Executive, in the ordinary course of his employment by the Company, had a material contact ("Customer") for business purposes unrelated to furthering the business of the Company. For a period of two (2) years following his employment by the Company, Executive shall not, directly or indirectly, (i) contact, solicit, divert or take away, any Customer for purposes of, or with respect to, selling a product or service which competes with the Business of the Company, or (ii) take any affirmative action in regard to establishing or continuing a relationship with a Customer for purposes of making, or which directly or indirectly results in, a sale of a product or service which competes with the Business of the Company. (b) Employees. During the employment of the Executive and for a period of two (2) years following any termination of employment of Executive, Executive shall not, directly or indirectly, recruit or hire, or attempt to recruit or hire, any other employees of the Company who were employed by the Company during the employment of the Executive and who are actively employed during the employment of the Executive or such two (2) year period. 13. REMEDY FOR BREACH. Executive agrees that remedies at law of the Company for any actual or threatened breach by Executive of any of the covenants contained in Section 7 through 12 of this Agreement would be inadequate and that the Company shall be entitled to specific performance by Executive of the covenants in such paragraphs or injunctive relief against activities in violation of such paragraphs, or both, by temporary or permanent injunction or other appropriate judicial remedy, writ or order, in addition to any damages and legal expenses (including attorney's fees) which the Company may be legally entitled to recover. Executive acknowledges and agrees that the covenants contained in Sections 7 through 12 of this Agreement shall be construed as agreements independent of any other provision of this or any other contract between the parties hereto, and that the existence of any claim or cause of action by Executive against the Company, whether predicated upon this or any other contract, shall not constitute a defense to the enforcement by the Company of said covenants. 14. SURVIVAL. The provisions of Sections 7 through 13 shall survive termination of this Agreement. 15. INVALIDITY OF ANY PROVISION. It is the intention of the parties hereto that Sections 7 through 12 of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of each state and jurisdiction in which such enforcement is sought, but that the unenforceability (or the modification to conform with such laws or public policies) of any provision hereof shall not render unenforceable or impair the remainder of this Agreement which shall be deemed amended to delete or modify, as necessary, the invalid or unenforceable -6- 7 provisions. The parties further agree to alter the balance of this Agreement in order to render the same valid and enforceable. 16. APPLICABLE LAW. This Agreement is being executed in the State of Georgia and shall be construed and enforced in accordance with the internal laws of the State of Georgia, without giving effect to the conflicts laws of such state. 17. WAIVER OF BREACH. The waiver by the Company of a breach of any provision of this Agreement by Executive shall not operate or be construed as a waiver of any subsequent breach by Executive. 18. SUCCESSORS AND ASSIGNS. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its Successors and Assigns, and the Company shall require any Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 19. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties. This Agreement may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, changes, modification, extension, or discharge is sought. 20. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Act" shall mean the Securities Act of 1933, as amended. (b) "Accrued Compensation" shall mean an amount, including all amounts earned or accrued through the Termination Date but not paid as of the Termination Date including, (i) base salary of the Executive, (ii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of the Company as of the Termination Date, and (iii) incentive compensation owed to the Executive. (c) "Base Amount" shall mean the greater of the Executive's annual Base Salary (i) at the rate in effect on the Termination Date or (ii) the highest rate in effect at any time during the 90 day period prior to a Change in Control, and shall include all amount of base salary that are deferred under qualified and non-qualified employee benefit plans of the Company. -7- 8 (d) The termination of the Executive's employment shall be for "Cause" if it is a result of: (i) any act that the Board of Directors reasonably determines (A) constitutes, on the part of the Executive, fraud, dishonesty, gross malfeasance of duty, or conduct grossly inappropriate to the Executive's office, and (B) is demonstrably likely to lead to material injury to the Company or resulted or was intended to result in a material benefit to the Executive at the Company's expense; or (ii) the conviction (from which no appeal may be or is timely taken) of the Executive of a felony; provided, however, that in the case of clause (i) above, such conduct shall not constitute Cause (x) unless (A) there shall have been delivered to the Executive a written notice setting forth with specificity the reasons that the Board believes the Executive's conduct constitutes the criteria set forth in clause (i), (B) the Executive shall have been provided the opportunity to be heard in person by the Board (with the assistance of the Executive's counsel if the Executive so desires), and (C) after such hearing, the termination for Cause is approved by a resolution adopted in good faith by two-thirds of the members of the Board (other than the Executive). (e) A "Change in Control" shall mean the occurrence during the Term of any of the following events: (i) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "1934 Act")) immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of a majority or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) or the acquisition of voting securities by a Person who, immediately prior to such acquisition, had Beneficial Ownership of 20% or more of the combined voting power of the Company's then outstanding voting securities shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a trust forming a part thereof) maintained by (x) the Company or (y) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by -8- 9 the Company (a "Subsidiary"), (2) the Company or any Subsidiary, or (3) any Person in connection with a "Non-Control Transaction" (as hereinafter defined). (ii) The individuals who, as of the date of this Agreement, are members of the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (iii) Approval by a majority of the stockholders of the Company of: (A) A merger, consolidation or reorganization involving the Company, unless (1) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, and (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least majority of the members of the board of directors of the Surviving Corporation. (A transaction described in clauses (1) and (2) shall herein be referred to as a "Non-Control Transaction.") (B) A complete liquidation or dissolution of the Company; or (C) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary). -9- 10 (iv) Notwithstanding anything contained in this Agreement to the contrary, if the Executive's employment is terminated at any time prior to a Change in Control and the Executive reasonably demonstrates that such termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") or (B) otherwise occurred in connection with, or in anticipation of, a Change in Control, then for all purposes of this Agreement, the date of a Change in Control with respect to the Executive shall mean the date immediately prior to the date of such termination of the Executive's employment. (f) "Disability" shall mean a physical or mental infirmity which materially impairs the Executive's ability to substantially perform any of the essential functions of his job with the Company for a period of 180 consecutive days, as determined by an independent physician selected with the approval of both the Company and the Executive. (g) "Effective Date" shall mean the day that the Company closes its Initial Public Offering. (h) "Good Reason" shall mean the occurrence of any of the following events or conditions: (i) a change in the Executive's status, title, position or responsibilities which, in the Executive's reasonable judgment, represents an adverse change from his status, title, position or responsibilities created by this Agreement, which is reasonably presented to the Board of Directors and which is accepted by the Board of Directors after due investigation and deliberation; (ii) a reduction in the Executive's Base Salary or any failure to pay the Executive any other compensation or benefits to which he is entitled under this Agreement within five days of the date due; (iii) the Company's requiring the Executive to be based at any place outside a 30-mile radius from the Executive offices occupied by the Executive immediately prior to a Change in Control, except for reasonably required travel on the Company's business which is not materially greater than such travel requirements prior to such Change in Control; (iv) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or Executive benefit -10- 11 plan in which the Employee was participating at any time within ninety days preceding the date of a Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other Executive benefit plan, program and practice in which the Executive was participating at any time within ninety days preceding the date of a Change in Control or at any time thereafter; (v) the insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company, which petition is not dismissed within sixty days; (vi) any material breach by the Company of any provision of this Agreement; (vii) any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of this Agreement; or (viii) the failure of the Company to obtain an agreement, satisfactory to the Executive, from any Successors and Assigns to assume and agree to perform this Agreement, as contemplated in Section 6 hereof. Any event or condition described in clause (i) through (viii) above which occurs prior to a Change in Control but which the Executive reasonably demonstrates (A) was at the request of a Third Party, or (B) otherwise arose in connection with, or in anticipation of, a Change in Control (whether or not it actually occurs), shall constitute Good Reason for purposes of this Agreement, notwithstanding that it occurred prior to the intended Change in Control. The Executive's right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. (i) "Initial Public Offering" shall mean the closing of the first public offering of the Company's common stock registered under the Act in which the aggregate proceeds to the Company, net of all underwriting discounts and commissions and other expenses of issuance and distribution as stated in the prospectus relating to such offering, are at least twenty-five million dollars ($25,000,000). (j) "Notice of Termination" shall mean a written notice of termination from the Company or the Executive which specifies an effective date of termination, indicates the specific termination provision in this Agreement relied upon, and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (k) "Successors and Assigns" shall mean, for a corporation, a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement),and for any individual as the Executive, the estate, successors or heirs, and/or the legal representative of the Executive, whether by operation of law or otherwise. -11- 12 (l) "Termination Date" shall mean, in the case of the Executive's death, his date of death, and in all other cases, the date specified in the Notice of Termination. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. EXECUTIVE: COMPANY: /s/ J. Neil Smith MELITA INTERNATIONAL CORPORATION - -------------------------------- J. Neil Smith By: /s/ Alek Szlam ----------------------------- Alek Szlam, Chairman and Chief Executive Officer -12- EX-10.8 14 TAX INDEMNIFICATION AGEEMENT (MELITA) 1 EXHIBIT 10.8 MELITA INTERNATIONAL CORPORATION/___________ TAX INDEMNIFICATION AGREEMENT This TAX INDEMNIFICATION AGREEMENT, dated as of the 5th day of March, 1997, is entered into by MELITA INTERNATIONAL CORPORATION, a Georgia corporation (the "Company") and _____________ (the "Stockholder"). RECITALS WHEREAS, prior to February 7, 1997, the Stockholder held four percent of the outstanding shares of the Company's Voting Common Stock, no par value, (the "Common Stock"); and WHEREAS, the Company has elected to be taxed as S corporation under the Code and that election has not been terminated; and WHEREAS, the Company is now contemplating offering and selling shares of its Common Stock to the public (the "Public Offering"); and WHEREAS, the Company plans, just prior to the commencement of the Public Offering, to terminate its S corporation election; and WHEREAS, the parties hereto wish to set forth their agreement with respect to certain adjustments to the federal and state income tax liability of the Stockholder and the Company attributable to Tax Items of the Company that pass through to the Stockholder under the provisions of Subchapter S of the Code and any similar provisions of state law for the period during which the Company is an S Corporation; NOW, THEREFORE, for value received, the parties agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement the following definitions shall apply: (a) "Adjustment" shall mean any proposed or final change in any S Corporation Tax Liability initiated by the IRS, state or local taxing authority, or any other relevant taxing authority. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect for the taxable period in question. 2 (c) "Final Determination" shall mean the final resolution of any Income Tax liability (including all related interest and penalties) for a taxable period. A Final Determination shall result from the first to occur of: (i) the expiration of 30 days after IRS acceptance of a Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment on Federal Revenue Form 870 or 870-AD (or any successor comparable form or the expiration of a comparable period with respect to any comparable agreement or form under the laws of other jurisdictions), unless, within such period, the taxpayer gives notice to the other party of the taxpayer's intention to attempt to recover all or part of any amount paid pursuant to the Waiver by the filing of a timely claim for refund; (ii) a decision, judgment, decree, or other order by a court of competent jurisdiction that is not subject to further judicial review (by appeal or otherwise) and has become final; (iii) the execution of a closing agreement under section 7121 of the Code or the acceptance by the IRS or its counsel of an offer in compromise under section 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iv) the expiration of the time for filing a claim for refund or for instituting suit in respect of a claim for refund disallowed in whole or part by the IRS or other relevant taxing authority; (v) any other final disposition of the tax liability for such period by reason of the expiration of the applicable statute of limitations; or (vi) any other event that the parties agree is a final and irrevocable determination of the liability at issue. (d) "Income Tax" shall mean federal income taxes and state and local taxes imposed upon, or measured by, income. Income Tax includes interest, penalties, and other additions to tax. (e) "IRS" shall mean the United States Internal Revenue Service or any successor, including, but not limited to, its agents, representatives, and attorneys. (f) "S Corporation" shall mean an S Corporation within the meaning of section 1361 of the Code. (g) "S Corporation Tax Liability" shall mean the personal Income Tax liability of the Stockholder for Income Taxes attributable to: (i) the Company's Tax Items that pass through to the Stockholder under the provisions of Subchapter S of the Code and any similar provisions of state and local law, or (ii) the Stockholder's receipt of indemnity payments hereunder. -2- 3 (h) "Tax Benefit" shall mean a reduction in the personal Income Tax liability of the Stockholder (as a result of Tax Items of the Company and all other Tax Items reflected on the Stockholder's tax return) for any taxable period. The Stockholder shall be deemed to have realized or received a Tax Benefit from a Tax Item in a taxable period only if and to the extent that the Stockholder's personal Income Tax liability for such period is less than it would have been if such liability were determined without regard to such Tax Item. The Stockholder shall be deemed to have realized or received a Tax Benefit with respect to a carryover only if, when, and to the extent the carryover is used to produce a Tax Benefit. (i) "Tax Item" shall mean any item of income, gain, loss, deduction, credit, recapture of credit, or any other item which increases or decreases Income Taxes paid or payable by the Stockholder (when the Company is an S Corporation) or by the Company. ARTICLE II INDEMNIFICATION FOR CERTAIN TAXES (a) The Stockholder shall pay to the Company an amount equal to any Tax Benefit actually realized or received arising from an Adjustment with respect to a Tax Item of the Company for any taxable period in which the Company was taxable as an S Corporation. (b) If based on a Final Determination the Company is deemed to have been a C corporation for federal, state or local income tax purposes during any period in which it reported (or intends to report) its taxable income as an S corporation, the Stockholder agrees to contribute to the capital of the Company an amount necessary to hold the Company harmless from any taxes (net of any refunds) and interest arising from such Final Determination. The obligations of the Stockholder under this subsection (b) shall include all taxes (net of any refunds) and interest incurred by the Company as a C Corporation for periods ending before the date of termination of the Company S election during 1997 (the "Termination Date"), other than any obligation arising from an adjustment to the Company's tax return for a period ending before the Termination Date which, if the Company had been an S corporation for such period, would have given rise to an obligation of the Company to the Stockholder under subsection (c) of this Article II. The Stockholder's obligation under this subsection (b) shall be limited to the total distributions to the Stockholder made by the Company through and including the Termination Date, reduced by any taxes (net of any refunds) and interest of the Stockholder attributable to such distributions. (c) The Company shall pay and indemnify the Stockholder for any S Corporation Tax Liability arising from an Adjustment with respect to a Tax Item of the Company. -3- 4 (d) Any payment required under this Article shall be made by the earliest of (1) 20 days after the Stockholder receives a refund or credit, (2) 20 days after a Final Determination with respect to such tax, (3) with respect to a carryover, 20 days after the Stockholder files a tax return on which the carryover produces a Tax Benefit, or (4) 20 days after the determination by the parties or pursuant to Article IV that such payment is due. ARTICLE III COOPERATION AND EXCHANGE OF INFORMATION Whenever the Stockholder or the Company becomes aware of an issue which either party believes could give rise to payment or indemnification from the other party under Article II, the Stockholder or the Company (as the case may be) shall promptly give notice of the issue to the other party. The indemnitor and its representatives, at the indemnitor's expense, shall be entitled to participate in all conferences, meetings, or proceedings with the IRS or other taxing authority with respect to the issue. The parties agree to consult and cooperate with each other in the negotiation and settlement or litigation of any Adjustment that may give rise to any payment or an indemnification payment under this Agreement. All decisions with respect to such negotiation and settlement or litigation shall be made by the parties after full and good faith consultation. If a party who will be required to make an indemnification payment (the "Indemnifying Party") proposes to accept a settlement offered by the relevant taxing authority with respect to an issue for one or more taxable years, but the party who will be entitled to receive the payment (the "Indemnified Party") disagrees with the proposed settlement, then the Indemnifying Party may pay to the Indemnified Party the amount that would be due under this Agreement pursuant to such settlement and, in that event, the Indemnifying Party shall have no further responsibility for amounts attributable to that issue for the taxable years involved. ARTICLE IV DISPUTES If the parties are, after negotiation in good faith, unable to agree upon the appropriate calculation of amounts due under this Agreement, the controversy shall be settled by Arthur Andersen, L.L.P. (the "Accounting Firm"). The decision of the Accounting Firm shall be final, and each of the Company and the Stockholder agree immediately to pay to the other any amount due under this Agreement pursuant to such decision. The expenses of the Accounting Firm shall be borne one-half by the Company and one-half by the Stockholder unless the Accounting Firm specifies otherwise. Any dispute arising between the parties with reference to the legal interpretation of this Agreement or their rights hereunder shall, upon written request of either party, be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen. Each party shall submit its case to its arbitrator within thirty days of the appointment of the third arbitrator. -4- 5 The decision in writing of any two arbitrators, when filed with the parties hereto, shall be final and binding on both parties. Judgment may be entered upon the final decision of the arbitrators in any court having jurisdiction. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the expense of the third arbitrator and of the arbitration. ARTICLE V MISCELLANEOUS Section 5.1 Term of Agreement. This Agreement shall become effective as of the date of its execution and shall continue in full force and effect indefinitely, except that this Agreement shall be void and of no effect if the Company's S corporation status is not terminated before January 1, 1998. Section 5.2 Severability. If any term of this Agreement is held by a court of competent jurisdiction to be unenforceable, the remainder of the terms set forth herein shall remain in full force and effect and shall in no way be impaired. In the event that any term is held to be unenforceable, the parties shall use their best efforts to find an alternative means to achieve the same or substantially the same result as that contemplated by such term. Section 5.3 Assignment. Except by operation of law or in connection with the sale of all or substantially all the assets of a party, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by the Stockholder without the written consent of the Company or by the Company without the written consent of the Stockholder. Any attempt to assign any right or obligations arising under this Agreement without such consent shall be void. However, the provisions of this Agreement shall be binding upon inure to the benefit of, and be enforceable by the parties and their respective successors and permitted assigns. Section 5.4 Further Assurances. Subject to the provisions of this Agreement, the parties shall acknowledge such other instruments and documents, and take all other actions, as may be reasonably required in order to effectuate the purposes of this Agreement. Section 5.5 Parties in Interest. Except as herein otherwise specifically provided, nothing in this Agreement expressed or implied is intended to confer any right or benefit upon any person, firm, or corporation other than the parties and their respective successors and permitted assigns. Section 5.6 Waivers, Etc. No failure or delay on the part of the parties in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by the parties therefrom shall in any event be effective unless it shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose which given. -5- 6 Section 5.7 Set-off. All payments to be made by any party under this Agreement shall be made without set-off, counterclaim, or withholding, all of which are expressly waived. Section 5.8 Change of Law. If, due to any change in applicable law or regulations or the interpretation thereof by any court or other governing body having jurisdiction subsequent to the date of this Agreement, performance of any provision of this Agreement shall be impracticable or impossible, the parties shall use their best efforts to find an alternative means to achieve the same or substantially the same results as are contemplated by such provision. Section 5.9. Headings. Descriptive headings are for convenience only and shall not control or affect the meaning of any provision of this Agreement. Section 5.10 Counterparts. For the convenience of the parties, any number of counterparts of this Agreement may be executed by the parties and each executed counterpart shall be an original instrument. Section 5.11 Notices. All notices provided for in this Agreement shall be validly given if in writing and delivered personally or sent by registered mail, postage prepaid if to the Company, at Melita International 5051 Peachtree Corners Circle Norcross, Georgia 30092-2500 Attn: President copy to: Robert A. Enholm General Counsel Melita International 5051 Peachtree Corners Circle Norcross, Georgia 30092-2500 if to the Stockholder, to: ------------------------------- ------------------------------- ------------------------------- or to such other addresses as any party may, from time to time, designate in a written notice given in a like manner. Notice given by mail shall be deemed delivered five calendar days after the date mailed. Section 5.12 Governing Law. This Agreement shall be governed by the domestic substantive laws of Georgia without regard to any choice or conflict of laws rule or provision that would cause the application of the domestic substantive laws of any other jurisdiction. -6- 7 Section 5.13 No Double Recovery. The total recovery received by the Company pursuant to Article II(b) of this Agreement, the Melita International Corporation/Aleksander Szlam Tax Indemnification Agreement, and the Melita International Corporation/Halina Szlam, as Trustee U/A/D February 7, 1997 Tax Indemnification Agreement shall not exceed the total taxes (net of refund) and interest arising from the Final Determination referred to therein. [Remainder of page intentionally left blank] -7- 8 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the day and year first written above. MELITA INTERNATIONAL CORPORATION: STOCKHOLDER: By: (SEAL) ----------------------------- ------------------------ J. Neil Smith, President ------------------------ -8- EX-10.9 15 TAX INDEMNIFICATION AGEEMENT (INVENTIONS INC) 1 EXHIBIT 10.9 INVENTIONS, INC. TAX INDEMNIFICATION AGREEMENT This TAX INDEMNIFICATION AGREEMENT, dated as of the 5th day of March, 1997, is entered into by INVENTIONS, INC., a Georgia corporation (the "Company") and ___________________________________ (the "Stockholder"). RECITALS WHEREAS, the Stockholder holds all of the outstanding shares of the Company's no par value Non-Voting Common Stock (the "Non-Voting Common Stock"); and WHEREAS, the Company has elected to be taxed as S corporation under the Code and that election has not been lost or revoked; and WHEREAS, pursuant to a planned public offering of the shares of a sister corporation, the Company plans to terminate its S corporation status just prior to the commencement of that public offering; and WHEREAS, during the period of the Company's S corporation status, the Company has paid no federal taxes and the Stockholder has assumed the responsibility for paying certain taxes and should those taxes be decreased or increased, the Company and Stockholder should share the benefit or burden of those taxes, as the case may be, for periods prior to the termination of the Company's S corporation status; WHEREAS, the parties wish to provide for the equitable adjustment among themselves for tax benefits or burdens occasioned by the operation of the Company prior to the termination of the Company's S corporation status; NOW, THEREFORE, FOR VALUE RECEIVED, the parties agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement the following definitions shall apply: (a) "Adjustment" shall mean any proposed or final change in any S Corporation Tax Liability initiated by the IRS or Georgia taxing authority. 2 (b) "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect for the taxable period in question. (c) "Final Determination" shall mean the final resolution of any Income Tax liability (including all related interest and penalties) for a taxable period. A Final Determination shall result from the first to occur of: the expiration of 30 days after IRS acceptance of a Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment on Federal Revenue Form 870 or 870-AD (or any successor comparable form or the expiration of a comparable period with respect to any comparable agreement or form under the laws of Georgia), unless, within such period, the taxpayer gives notice to the other party of the taxpayer's intention to attempt to recover all or part of any amount paid pursuant to the Waiver by the filing of a timely claim for refund; a decision, judgment, decree, or other order by a court of competent jurisdiction that is not subject to further judicial review (by appeal or otherwise) and has become final; the execution of a closing agreement under section 7121 of the Code or the acceptance by the IRS or its counsel of an offer in compromise under section 7122 of the Code, or comparable agreements under the laws of Georgia; the expiration of the time for filing a claim for refund or for instituting suit in respect of a claim for refund disallowed in whole or part by the IRS or the Georgia Department of Revenue; any other final disposition of the tax liability for such period by reason of the expiration of the applicable statute of limitations; or any other event that the parties agree is a final and irrevocable determination of the liability at issue. (d) "Income Tax" shall mean federal income taxes and Georgia income taxes. Income Tax includes interest, penalties, and other additions to tax. (e) "IRS" shall mean the United States Internal Revenue Service or any successor, including, but not limited to, its agents, representatives, and attorneys. (f) "S Corporation" shall mean an S Corporation within the meaning of section 1361 of the Code. (g) "S Corporation Tax Liability" shall mean the personal Income Tax liability of the Stockholder for Income Taxes attributable to (a) the Company's Tax Items that pass through to the Stockholder under the provisions of Subchapter S of the Code and any similar provisions of state and local law or (b) the Stockholder's receipt of indemnity payments hereunder. -2- 3 (h) "Tax Benefit" shall mean a reduction in the personal Income Tax liability of the Stockholder (as a result of Tax Items of the Company and all other Tax Items reflected on the Stockholder's tax return) for any taxable period. The Stockholder shall be deemed to have realized or received a Tax Benefit from a Tax Item in a taxable period only if and to the extent that the Stockholder's personal Income Tax liability for such period is less than it would have been if such liability were determined without regard to such Tax Item. The Stockholder shall be deemed to have realized or received a Tax Benefit with respect to a carryover only if, when, and to the extent the carryover is used to produce a Tax Benefit. (i) "Tax Item" shall mean any item of income, gain, loss, deduction, credit, recapture of credit, or any other item which increases or decreases Income Taxes paid or payable by the Company or by the Stockholder when the Company is an S Corporation. ARTICLE II INDEMNIFICATION FOR CERTAIN TAXES (a) The Stockholder shall pay to the Company an amount equal to any Tax Benefit actually realized or received arising from an Adjustment with respect to a Tax Item of the Company for any taxable period in which the Company was taxable as an S Corporation. (b) If based on a Final Determination the Company is deemed to have been a C corporation for federal or state income tax purposes during any period in which it reported (or intends to report) its taxable income as an S corporation, the Stockholder agrees to contribute to the capital of the Company an amount necessary to hold the Company harmless from any taxes (net of any refunds) and interest imposed on the Company and arising from such Final Determination. The obligations of the Stockholder under this subsection (b) shall include all taxes (net of any refunds) and interest incurred by the Company as a C Corporation for periods ending before the date of termination of the Company S election during 1997 (the "Termination Date"), other than: (i) any obligation arising from an adjustment to the Company's tax return for a period ending before the Termination Date which, if the Company had been an S corporation for such period, would have given rise to an obligation of the Company to the Stockholder under subsection (c) of this Article II; and (ii) any taxes, interest, and penalties incurred by the Company for all taxable years ending before January, 1997. -3- 4 The Stockholder's obligation under this subsection (b) shall be limited to the total distributions to the Stockholder made by the Company through and including the Termination Date, reduced by any taxes (net of any refunds) and interest of the Stockholder attributable to such distributions. (c) The Company shall pay and indemnify the Stockholder for any S Corporation Tax Liability arising from an Adjustment with respect to a Tax Item of the Company. (d) Any payment required under this Article shall be made by the earliest of (1) 20 days after the Stockholder receives a refund or credit, (2) 20 days after a Final Determination with respect to such tax, (3) with respect to a carryover, 20 days after the Stockholder files a tax return on which the carryover produces a Tax Benefit, or (4) 20 days after the determination by the parties or pursuant to Article IV that such payment is due. ARTICLE III COOPERATION AND EXCHANGE OF INFORMATION Whenever the Stockholder or the Company becomes aware of an issue which either party believes could give rise to payment or indemnification from the other party under Article II, the Stockholder or the Company (as the case may be) shall promptly give notice of the issue to the other party. The indemnitor and its representatives, at the indemnitor's expense, shall be entitled to participate in all conferences, meetings, or proceedings with the IRS or other taxing authority with respect to the issue. The parties agree to consult and cooperate with each other in the negotiation and settlement or litigation of any Adjustment that may give rise to any payment or an indemnification payment under this Agreement. All decisions with respect to such negotiation and settlement or litigation shall be made by the parties after full and good faith consultation. If a party who will be required to make an indemnification payment (the "Indemnifying Party") proposes to accept a settlement offered by the relevant taxing authority with respect to an issue for one or more taxable years, but the party who will be entitled to receive the payment (the "Indemnified Party") disagrees with the proposed settlement, then the Indemnifying Party may pay to the Indemnified Party the amount that would be due under this Agreement pursuant to such settlement and, in that event, the Indemnifying Party shall have no further responsibility for amounts attributable to that issue for the taxable years involved. ARTICLE IV DISPUTES If the parties are, after negotiation in good faith, unable to agree upon the appropriate calculation of amounts due under this Agreement, the controversy shall be settled by Arthur Andersen, L.L.P. (the "Accounting Firm"). The decision of the Accounting Firm shall be final, -4- 5 and each of the Company and the Stockholder agree immediately to pay to the other any amount due under this Agreement pursuant to such decision. The expenses of the Accounting Firm shall be borne one-half by the Company and one-half by the Stockholder unless the Accounting Firm specifies otherwise. Any dispute arising between the parties with reference to the legal interpretation of this Agreement or their rights hereunder shall, upon written request of either party, be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen. Each party shall submit its case to its arbitrator within thirty days of the appointment of the third arbitrator. The decision in writing of any two arbitrators, when filed with the parties hereto, shall be final and binding on both parties. Judgment may be entered upon the final decision of the arbitrators in any court having jurisdiction. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the expense of the third arbitrator and of the arbitration. ARTICLE V MISCELLANEOUS Section 5.1 Term of Agreement. This Agreement shall become effective as of the date of its execution and shall continue in full force and effect indefinitely, except that this Agreement shall be void and of no effect if the Company's S corporation status is not terminated before January 1998. Section 5.2 Severability. If any term of this Agreement is held by a court of competent jurisdiction to be unenforceable, the remainder of the terms set forth herein shall remain in full force and effect and shall in no way be impaired. In the event that any term is held to be unenforceable, the parties shall use their best efforts to find an alternative means to achieve the same or substantially the same result as that contemplated by such term. Section 5.3 Assignment. Except by operation of law or in connection with the sale of all or substantially all the assets of a party, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by the Stockholder without the written consent of the Company or by the Company without the written consent of the Stockholder. Any attempt to assign any right or obligations arising under this Agreement without such consent shall be void. However, the provisions of this Agreement shall be binding upon inure to the benefit of, and be enforceable by the parties and their respective successors and permitted assigns. Section 5.4 Further Assurances. Subject to the provisions of this Agreement, the parties shall acknowledge such other instruments and documents, and take all other actions, as may be reasonably required in order to effectuate the purposes of this Agreement. Section 5.5 Parties in Interest. Except as herein otherwise specifically provided, nothing in this Agreement expressed or implied is intended to confer any right or benefit upon -5- 6 any person, firm, or corporation other than the parties and their respective successors and permitted assigns. Section 5.6 Waivers, Etc. No failure or delay on the part of the parties in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by the parties therefrom shall in any event be effective unless it shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose which given. Section 5.7 Set-off. All payments to be made by any party under this Agreement shall be made without set-off, counterclaim, or withholding, all of which are expressly waived. Section 5.8 Notices. All notices provided for in this Agreement shall be validly given if in writing and delivered personally or sent by registered mail, postage prepaid if to the Company, at c/o Melita International 5051 Peachtree Corners Circle Norcross, Georgia 30092-2500 Attn: President copy to: Robert A. Enholm General Counsel Melita International 5051 Peachtree Corners Circle Norcross, Georgia 30092-2500 if to the Stockholder, to: -------------------------------- -------------------------------- -------------------------------- or to such other addresses as any party may, from time to time, designate in a written notice given in a like manner. Notice given by mail shall be deemed delivered five calendar days after the date mailed. -6- 7 Section 5.9 Governing Law. This Agreement shall be governed by the domestic substantive laws of Georgia without regard to any choice or conflict of laws rule or provision that would cause the application of the domestic substantive laws of any other jurisdiction. Section 5.10 No Double Recovery. The total recovery received by the Company pursuant to Article II(b) of this Agreement and the Inventions, Inc./Aleksander Szlam Tax Indemnification Agreement shall not exceed the total taxes (net of refund) and interest arising from the Final Determination referred to therein. [Remainder of page intentionally left blank] -7- 8 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the day and year first written above. COMPANY: STOCKHOLDER: INVENTIONS, INC., a Georgia corporation ------------------------------- By: ---------------------------------- -------------------------------(SEAL) Its duly authorized representative -------------------------------
-8- EX-10.10 16 NOTE OF REGISTRANT DATED 6/19/92 1 EXHIBIT 10.10 NOTE $3,000,000 Dated June 19, 1992 Undersigned hereby promises to pay to the order of Aleksander Szlam the sum of Three Million Dollars ($3,000,000) together with interest thereon at the prime rate stated in the Wall Street Journal on the last day of the applicable quarter plus 1%, such interest payable quarterly in arrears on the first day of each quarter beginning October 1, 1992. The principal is due in sixteen (16) equal quarterly installments beginning July 1, 1996, all at such place as Payee may direct. This note may be prepaid without premium, in whole or in part, at any time and from time to time. Any such prepayment shall be applied first to accrued, unpaid interest and thereafter to principal. In the event of a failure by Undersigned to make any payment required hereunder ("default") when due or if Aleksander Szlam's direct or indirect ownership of Melita International Corporation falls below seventy-five percent (75%) of the outstanding common stock, the entire principal and interest hereunder shall, at the option of the Payee, exercisable at any time following the tenth day after notice of such default, become immediately due and payable at the rate of prime plus one (1%) per year, compounded annually, until paid. WITNESS the hand of Undersigned. By: Melita International Corporation /s/ /s/ Aleksander Szlam - -------------------------------- ------------------------------------------- Vice President, Finance Title: President & Chief Executive Officer Date: 6/19/92 -------------------------------------- - -------------------------------- Corporate Seal /s/ - -------------------------------- Secretary EX-11.1 17 COMPUTATION OF PER SHARE EARNINGS 1 Melita International Corporation, EXHIBIT 11.1 Melita Europe Limited and Inventions, Inc. Computation of Pro Forma Earnings Per Share
PRO FORMA FOR THE YEAR ENDED DECEMBER 31, 1996 ----------------- IN THOUSANDS PRIMARY AND FULLY DILUTED Pro Forma Net Income 4,782 Weighted Average Common Stock Outstanding During the Period 8,000 Cheap Stock (1) 110 Effect of the Combination (2) 3,143 Dilutive Effect of Common Stock Equivalents 142 ------ Total 11,395 ====== Per share amount 0.42 ======
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common stock and common stock equivalents issued at prices below the assumed initial public offering price per share ("cheap stock") during the twelve months immediately preceding the initial filing date of the Company's Registration Statement for its public offering have been included as outstanding for all periods presented. (2) Reflects pro forma issuance of 3,143,395 shares of Common Stock in connection with the combination of Melita International Corporation, Melita Europe Limited and Inventions, Inc. EX-21.1 18 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 MELITA INTERNATIONAL CORPORATION List of Subsidiaries The subsidiaries of the Registrant are as follows: Inventions, Inc. Organized in Georgia Melita Europe Limited Organized in the United Kingdom Each company does business in the name listed above. EX-23.1 19 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 [LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our firm) included in or made part of this Registration Statement. ARTHUR ANDERSEN LLP Atlanta, Georgia March 4, 1997 EX-23.2 20 CONSENT OF BDO STOY HAYWARD 1 EXHIBIT 23.2 [LETTERHEAD OF BDO STOY HAYWARD APPEARS HERE] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the use in the Prospectus constituting a part of this Registration Statement on Form S-1 of our report dated February 28, 1997 on the financial statements of Melita Europe Limited as of December 31, 1995 and December 31, 1996 and for the three years in the period ended December 31, 1996. We also consent to the reference to us under the caption "Experts" in the Prospectus. BDO STOY HAYWARD Ewell, Epsom Surrey March 4, 1997 EX-27.1 21 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 US DOLLARS YEAR YEAR YEAR DEC-31-1994 DEC-31-1995 DEC-31-1996 JAN-01-1994 JAN-01-1995 JAN-01-1996 DEC-31-1994 DEC-31-1995 DEC-31-1996 1 1 1 0 5,959 9,849 0 0 0 0 9,534 12,347 0 331 487 0 3,027 2,442 0 18,531 24,321 0 5,762 7,180 0 3,423 4,456 0 20,928 27,069 0 11,627 16,197 0 3,000 2,625 0 0 0 0 0 0 0 49 49 0 25 55 0 20,928 27,069 18,186 24,620 32,077 27,156 35,282 47,540 6,310 8,730 11,494 9,564 14,012 18,357 14,992 16,609 21,835 146 117 260 271 297 273 2,646 4,749 7,609 (26) 0 0 2,672 4,749 7,609 0 0 0 0 0 0 0 0 0 1,508 2,955 4,782 0 0 .42 0 0 .42
EX-99.1 22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 99.1 [LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited in accordance with generally accepted auditing standards, the combined financial statements of Melita International Corporation, Melita Europe Limited, and Inventions, Inc. included in this registration statement and have issued our report thereon dated February 28, 1997. Our audit was made for the purpose of forming an opinion on the basic combined financial statements taken as a whole. Schedule II identified in Item 16(b) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic combined financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic combined financial statements and, in our opinion, fairly states in all material respects the combined financial data to be set forth therein in relation to the basic combined financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia February 28, 1997 -----END PRIVACY-ENHANCED MESSAGE-----